Dow Industrials, S&P 500 Drop After Big Monday Gain
04 March 2020 - 2:34AM
Dow Jones News
By Anna Isaac and Xie Yu
U.S. bounced back Tuesday after the Federal Reserve followed
through on a pledge that it stood ready to take action to combat
economic risks related to the coronavirus.
The Dow Jones Industrial Average rose about 321 points, or 1.2%,
to 27007, reversing a decline after the opening bell after the
Federal Reserve cut its short-term interest rate by 0.5 percentage
point.
The S&P 500 advanced 1% and the Nasdaq Composite rose 0.7%,
following Monday's sharp rally.
Global markets had earlier pared gains after finance ministers
and central bankers from the Group of Seven countries said they
were ready to use "all appropriate policy tools" -- including
possibly fiscal stimulus measures -- to guard against economic
risks from the coronavirus. The statement helped assure investors
that officials are closely monitoring the situation. But for some,
it fell short of the more specific and detailed coordinated policy
response they had sought.
"People will want to see something firm underneath the
language," said Gregory Perdon, co-chief investment officer at
Arbuthnot Latham investment management. "The proof is in the
pudding, put some numbers on the table."
Hopes for a wave of stimulus helped drive the Dow up 5.1% on
Monday, its biggest gain in more than a decade.
"This talk of concerted and coordinated action from central
banks has had a reaction, but what form that takes, time will
tell," said Russ Mould, investment director at AJ Bell. "Cutting
interest rates is not going to make someone take a flight to Italy
if they're too scared to do it."
Selling was broad Tuesday, with all 11 sectors of the S&P
500 trading lower.
One group that did bounce higher: airline stocks. United
Airlines Holdings added 2.6% and Delta Air Lines climbed 5.5%. The
travel industry has taken a particularly hard hit in bouts of
selling related to the coronavirus over the past couple of
weeks.
Elsewhere, the Stoxx Europe 600 rose 2.5%.
Airlines were also among the best-performing stocks in Europe on
Tuesday, with Deutsche Lufthansa advancing 8.3%.
Stock performance was more muted in Asia, as a strong rally
faded through the course of the day. Hong Kong's Hang Seng Index
closed mostly flat, while Japan's Nikkei 225 dropped 1.2% and
China's Shanghai Composite closed 0.7% higher.
In bond markets, the yield on the benchmark 10-year U.S.
Treasury rose to 1.134%, from 1.085% Monday. Yields rise as bond
prices fall.
Bond futures are pricing in a 100% chance of interest rates
being 0.5 percentage point lower by the March meeting, and a more
than 70% chance that rates will be 0.75 percentage point lower than
by April, according to the CME FedWatch tool.
Some analysts and investors questioned how effective monetary
policy could be in counteracting the economic effects of a public
health crisis.
"Cutting rates helps boost investors' confidence, but it won't
help sick or quarantined people get back to work," said Bruce Pang,
head of macro and strategy research at China Renaissance Securities
(HK) Ltd. Fiscal policy would be more effective than action from
central banks, whose results would be indirect and distorted, Mr.
Pang said.
Akane Otani contributed to this article
Write to Anna Isaac at anna.isaac@wsj.com and Xie Yu at
Yu.Xie@wsj.com
(END) Dow Jones Newswires
March 03, 2020 10:19 ET (15:19 GMT)
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