Wall Street drops after Federal Reserve’s surprise rate cut

Wall Street dropped on Tuesday in a volatile session after the U.S. Federal Reserve surprised investors with a half percentage-point cut in interest rates, amplifying fears about the magnitude of the coronavirus’ impact on the economy. All three major U.S. stock market indexes dropped more than 3% after the Fed’s first emergency rate cut since the 2008 financial crisis.

Federal Reserve rate cutNoel Randewich for Reuters:

The rate reduction underscored the Fed’s concern about the coronavirus that has spread around the world after emerging late last year in China. It came two weeks ahead of a scheduled policy meeting, where traders had fully priced in a 50 basis point cut.

“The rate cut underscores the magnitude of the problem that the global economy is facing,” said Peter Kenny, founder of Kenny’s Commentary LLC and Strategic Board Solutions LLC in New York. “Normally, markets would welcome a rate cut, and they were hoping for it. Now that we’ve got it, the question is, what’s next?”

Ten of the 11 major S&P sectors fell, with the information technology index slumping 4.6%. Apple and Microsoft fell 5% and 4%, respectively.

MacDailyNews Take: In a nutshell, the widely-expected Federal Reserve’s rate cut came a bit early, spooking the markets. The market doesn’t like surprises of any kind.

3 Comments

  1. A rate cut doesn’t have any impact on the virus itself. Until more is understood about the virus, how wide spread it is, how it is transmitted, what asymptommatic cases look like, what the actual death rate is, and how these factors will impact broader aspects of society, uncertainty will continue to result in market volatility. All those factors are outside the control of the Fed. The suggestion that a rate cut might help is magical thinking.

  2. At this point it is hard to be sure of what is happening but it seems to be following the pattern of influenza with a spike in cases then a decline. The mortality rate appears to be similar to influenza with the mortality being in people who are chronically ill or over 65. There are no REPORTED cases in people under 15 but that is because they might have mild disease. The actual incidence is hard to determine because most people have mild symptoms that could easily be mistake for any other respiratory virus that occurs this time of year.

    This week’s New England Journal of Medicine reported the course of the first person in the US to contact the disease (not posted yet on web site: NEJM.org). The man is a 39 yo male who was ill for about 10 days. He ran a fever for 6 days and had respiratory symptoms with some shortness of breath on days 6 & 7 for which he received O2 but which was discontinued on day 8. He had some nausea, vomiting and diarrhea on days 4 to 7 which is very atypical for influenza and confuses the clinical picture complete. He was in Respiratory isolation unit for 11 days, after which he was discharged home, completely recovered. He was mostly treated symptomatically with fluids and acetaminophen although he received an experimental antiviral which may have affected his course.

    How serious is this illness? It is serious because of the rapid spread and how highly contagious it is. It is about a serious as influenza at this point and less serious than SARS. This is not a repeat of the 1918 influenza epidemic with 20% mortality, many in totally healthy people. Our ability to treat people with compromised lung function is much improved since 1918 as long as the medical system is not overwhelmed with sick people that require hospitalization and the global economy doesn’t crash due to disrupted trade/production fears or reality. That doesn’t appear likely at this point.

    Here is the link to the CDC information page:

    https://www.cdc.gov/coronavirus/2019-ncov/index.html

    Here is Dr. Anthony Fauci’s statement and interview link:
    https://www.foxnews.com/media/dr-anthony-fauci-coronavirus-vaccine-be-prepared

    What to do? To paraphrase the Brits: Keep calm and Keep going.

    1. I thought Dr Fauci said Covid-19 was 20x more lethal than the common flu? 2% mortality vs 0.1%?

      From CNN: “Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, said the mortality rate for novel coronavirus is about 2% if “you just do the math.”

      “If you look at the cases that have come to the attention of the medical authorities in China, and you just do the math, the math is about 2%. If you look at certain age groups, certain risk groups, the fatality is much higher. But as a group it’s going to depend completely on what the factor of asymptotic cases are. So if you have asymptotic cases that are a lot, it’s going to come down,” Fauci said on Wednesday during a House Appropriations Committee hearing on NIH’s budget.
      On Tuesday, World Health Organization Director-General Tedros Adhanom Ghebreyesus said globally the rate is about 3.4%.

      Speaking about the WHO’s higher number, Fauci said, “What we’re hearing right now, on a recent call from the WHO this morning is that there aren’t as many asymptotic cases as we think. Which made them elevate, I think, what their mortality is.”

      Fauci warned, “You know as well as anybody that the mortality for seasonal flu is .1% so even if it goes down to 1% it’s still 10 times more fatal.””

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