Stocks Plummet 12% as Fed Action Fails to Prevent Slide

The three major stock indexes dropped 12% on Monday as investors weighed the deepening economic hit from the coronavirus pandemic.
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Stocks plummeted on Monday as investors weighed the deepening economic hit from the coronavirus pandemic and the Federal Reserve and other global central banks took emergency measures to prop up capital markets and liquidity.

Stocks were halted at the open as a rush of selling triggered circuit breakers. The Dow Jones Industrial Average finished down nearly 3,000 points, or 12.93%, to 20,186, the S&P 500 fell 11.98% and the Nasdaq slid 12.32%. 

The Dow during Monday's session traded 30% below its record high.

The Fed slashed its benchmark lending rate by 1 percentage point on Sunday to a range of 0% to 0.25%, matching the record low seen during the peak of the global financial crisis in 2008.

The central bank also said it would restart its quantitative-easing program, with at least $700 billion in new bond and mortgage-backed securities purchases over the coming weeks.

Several other central banks around the world followed suit, with the Bank of Japan ramping up its asset purchase program, the Reserve Bank of Australia providing further liquidity injections and the Bank of New Zealand cutting its benchmark rate by 75 basis points to 0.25%.

“While financial institutions are strong, the functioning of markets leaves something to be desired, as the demand for cash is paramount," said Bankrate.com's chief financial analyst, Greg McBride. 

"The Fed’s work is not done as further efforts to backstop credit markets will remain necessary, beyond their current initiatives to buy Treasuries and mortgage-backed securities.”

Analysts at Goldman Sachs predicted that the U.S. economy, the world's largest, would shrink 5% in the second quarter after zero gross domestic product growth in the first three months of 2020.

Monday's sharp losses were a reversal from Friday's dramatic gains, which came after President Donald Trump declared a national emergency in an effort to fight the coronavirus outbreak. The declaration freed up as much as $50 billion in financial resources to help Americans affected by the outbreak.

The Dow on Friday finished up 1,950 points, or 9.2%, to 23,151, the blue-chip index's biggest point gain ever. The S&P 500 rose 9.21% and the Nasdaq gained 9.34%.

The number of confirmed global cases of the coronavirus has risen to 179,103, according to the Johns Hopkins Center for Systems Science and Engineering, and deaths increased to 7,079.

The U.S. has 4,138 cases of the virus and 71 people have died.

New York City said it will limit all bars and restaurants to takeout and deliveries in an attempt to slow the coronavirus. Nightclubs, gyms, and movie theaters must also close. Similar measures will be taken in Los Angeles.

All New York City-areas schools, as well as all other school districts in downstate New York, will begin closing early this week.

A clinical trial evaluating a vaccine designed to protect against the new coronavirus will begin Monday, the Associated Press reported, citing a government official.

Testing will begin with 45 young, healthy volunteers with different doses of shots co-developed by the National Institutes of Health, which is funding the trial, and Moderna  (MRNA) - Get Report. It will take a year to 18 months to fully validate any potential vaccine, public health officials said.

United Airlines  (UAL) - Get Report said it planned to cut capacity by about 50% in April and May after projecting that revenue in March would be $1.5 billion lower than a year earlier.

Amazon.com  (AMZN) - Get Report warned that it was running out of stock of popular household items and also experiencing delivery delays with its Amazon Prime service amid the coronavirus outbreak - and a massive surge in shoppers switching to ordering online.