US stocks dropped Monday despite the Federal Reserve throwing more lifelines at the US economy, as Democrats and Republicans in Congress failed to pass a rescue package to ease the financial devastation from the deadly bug.
In a wild day of trading, the Dow Jones industrial average at one point plunged nearly 1,000 points, or 5 percent, despite the Fed’s Monday morning announcement that it would place no limits on a huge bond-buying program it restarted a week ago, repurchasing hundreds of billions of dollars’ worth of Treasurys and mortgage-backed securities.
Stocks pared their losses after Senate Minority Leader Chuck Schumer said lawmakers were “very close” to a stimulus deal worth at least $1.6 trillion, only to plummet again after the bill on the table failed a procedural vote.
The Dow finished down 582.05 points, or 3 percent, at 18,591.93. The S&P was off 2.9 percent and the Nasdaq was 0.3 percent in the red.
The Fed’s latest action — coming on the heels of two emergency interest-rate cuts — led stock futures to climb into the green before the market opened, but ultimately failed to relieve investors rattled by the standoff on Capitol Hill amid the virus’s continued spread.
“What the Fed did was a huge deal, it was them basically saying, ‘We’ll let the credit freeze-up over our dead bodies,’” said George Pearkes, global macro strategist for Bespoke Investment Group. “The Fed is providing the lubricant, but Congress needs to give more gas.”
“At the end of the day, there’s only so much the public sector can do to protect us from the impact of this shutting down the economy for a long period of time,” added Lamar Villere, portfolio manager of the Villere Balanced Fund. “It’s unprecedented and investors are understandably very spooked by the potential risk here.”
Monday’s drops continued a volatile month in which the widening coronavirus crisis has sent global markets into a freefall. The virus has sparked fears of a deep recession because it has forced businesses to close and lay off workers while consumers stay shut in their homes to prevent the disease from spreading.
Last week, the Dow and S&P suffered their worst week since the 2008 financial crisis. Both indexes are off 30 percent from the all-time highs they hit last month.
Monday marked the first day of trading since the New York Stock Exchange closed its famous trading floor on Friday after two workers at the exchange tested positive for the coronavirus.
JP Morgan expects Thursday’s weekly federal jobless claims report to show a record 1.5 million people applying for unemployment benefits last week as the pandemic shuts down movie theaters, restaurants and arenas. That would mark a staggering increase from the prior week’s total of 281,000.
The evolution of the virus “will play an important role in driving further efforts at social distancing and bans on nonessential activity, which will determine the effects of the virus on labor markets and GDP,” JP Morgan senior economist Jesse Edgerton said.
Additional reporting by Thornton McEnery
