Before The Bell
- It certainly has been a hectic week and a half on Wall Street, with both the biggest point decline in a single day for the Dow Jones Industrial Average (on February 27th) and the largest point advance in the blue chip index on March 2nd. All the while, we have seen other major setbacks, intraday reversals, and additional selloffs. And what has been the cause of these exaggerated moves? Clearly, it has been the rapid spread of the deadly coronavirus, which now has infected almost 100,000 individuals worldwide, killing over 3,000.
As to yesterday, the day started in unprepossessing fashion, with the Dow quickly falling to a triple-digit loss. Then, the Federal Reserve voted in an emergency half percentage point cut in the federal funds rate. (An emergency rate cut is one that takes place between FOMC meetings. The last time we had such a rate reduction was during the financial crisis and recession of 2007-2009.) With this latest rate cut in place, the market quickly turned higher, in what seemed, at first, to be the start of a second price surge in two days.
However, that bullish run did not last all that long, and as we hit the 90-minute mark of the trading day, the stock market would move lower and then stay there for the remainder of the session, with the losses mounting and even accelerating as the afternoon moved along. True, there would be brief buying flurries, with one taking the Dow from a loss of nearly 1,000 points to a deficit of just about 500 points in minutes. But these periods would not last, and we would close with hefty losses across the board.
So what did the market in after the Fed rate cut, an action that is normally bullish? It was probably the big unknown of just why did the lead bank see the need for such action. In other words, what does the Fed know that the others do not? Also, this is a supply problem, rather than a demand shortfall. During the last recession, it had been a paucity of demand that was alleviated by the Fed. So, it is not certain the central bank will be pivotal in halting the business slowdown now under way in this country.
Indeed, one pundit criticized the interest rate move as a sign of panic that will do nothing to alleviate the illnesses, cancellations, and lack of supplies engendered by the virus. Also unnerving was the further drop in the yield on the 10-year Treasury bond to just 1.01% at the close, after falling below 1.00% intraday.
All told, the Dow would bounce back slightly from its worst losses on the day to close off 786 points; the S&P 500 Index would decline 87 points; and the NASDAQ would tumble 286 points. Some two-thirds of the prior day's advance would be given up in this latest round of massive selling.
Looking out at a new day now, and after digesting yesterday's big setback for the bulls, we see the early signs pointing to a nice rebound at the open this morning. – Harvey S. Katz, CFA