Stocks End Down After Wall Street Worries Rate Cut Won't Be Enough

Stocks finished sharply lower - the Dow Jones industrials gave up nearly 3% - after Fed Chairman Jerome Powell explained the central bank's reasoning for cutting interest rates 50 basis points in a surprise move.
Publish date:
  1. Stocks ended sharply down after Fed Chairman Jerome Powell explained the central bank's reasoning for cutting interest rates 50 basis points in a surprise move.
  2. Coronavirus update: In China, where the coronavirus outbreak began, 2,943 deaths have been reported with 80,151 confirmed cases. Globally, there have been 3,131 deaths and 92,314 cases.
  3. Target is Real Money's Stock of the Day. The retailer posted stronger-than-expected fourth-quarter earnings but forecast first-quarter same-store sales below Wall Street forecasts. 

Stocks on Tuesday finished sharply lower and Treasurys surged after Federal Reserve Chairman Jerome Powell explained the central bank's reasoning for cutting interest rates 50 basis points, a surprise move meant to support financial markets amid the coronavirus outbreak.

The Dow Jones Industrial Average ended down 785 points, or 2.94%, to 25,917, the S&P 500 tumbled 2.81% and the Nasdaq finished down 2.99%.

The Dow fell as much as nearly 1,000 points, or more than 3.7%.

American Express (AXP) - Get Report, Microsoft (MSFT) - Get Report and 3M (MMM) - Get Report, led the Dow's descent.

The yield on the 10-year Treasury dropped below 1% for the first time following the rate cut from the Federal Reserve. The yield fell to an all-time low of 0.9587% on Tuesday.

Powell said at a news conference that "we've seen a broader spread of the virus ... and so we saw a risk to the outlook for the economy and chose to act."

He added the Fed “judged that the risks to the U.S. outlook have changed materially” and the central bank “can and will do our part ... to keep the U.S. economy strong as we meet this challenge.”

The surprise decision from the Fed was designed to cushion the economic impact of the spread of the coronavirus. 

The move clipped the federal funds rate to a range of 1% to 1.25% and followed an emergency meeting of G-7 finance ministers and central bankers earlier Tuesday. 

It's the biggest rate cut since fall 2008 and the first emergency rate move since the global financial crisis.

“The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity," the Federal Reserve said in a statement after the rate cut was announced. 

"In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided (Tuesday) to lower the target range for the federal funds rate."

Wall Street worried the rate cut won't be enough to boost slowing economic activity caused by the virus outbreak.

“Clearly the Fed can’t develop a cure or vaccine for the Covid-19 outbreak, so they are reacting to the upcoming threat to economic activity in the only way they know how - by targeting monetary policy,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. 

“The Fed is clearly weighing the damages to inaction and finding that to be more compelling than doing nothing and taking the risk that a recession will take hold while they stand idly by.”

"I don’t think many market observers would say we’re in conditions like we were in 2008, so the Fed’s move is certainly eyebrow-raising, albeit welcomed," said Mike Loewengart, vice president of investment strategy at E-Trade. 

"To be sure, the Fed can’t stop the virus, or fix broken supply chains, but as Powell said, they have tools in their tool chest and they will use them when necessary. And if (Tuesday) is any indication, they mean business."

President Donald Trump on Tuesday said the Federal Reserve should cut rates even further.

The Fed “must further ease and, most importantly, come into line with other countries/competitors,” Trump said in a tweet. 

“We are not playing on a level field. Not fair to USA. It is finally time for the Federal Reserve to LEAD. More easing and cutting!”

Meanwhile, Google canceled in-person for its Google I/O event, CNBC reported. Google also halted international employee travel and is advising currently traveling employees to return home, CNBC said. Google initially restricted travel in several particular countries including China, Italy and Iran.

Target  (TGT) - Get Report posted stronger-than-expected fourth-quarter earnings but forecast near-term sales that missed Wall Street forecasts. 

The retailer said it expected first-quarter adjusted earnings of $1.55 to $1.75 a share vs. expectations of $1.66, and fiscal-year adjusted profit of $6.70 to $7 a share vs. Wall Street estimates of $6.88. 

Target said it expected a low-single-digit increase in comparable-store sales in the first quarter, compared with a 2.7% increase expected from analysts and a 4.8% pace recorded a year earlier. 

Fourth-quarter earnings for Kohl's  (KSS) - Get Report were better than expected but the company noted that same-store sales could fall and profit margins could narrow in the coming financial year. The retailer boosted its dividend by 5%.

Thermo Fisher Scientific  (TMO) - Get Report agreed to buy Dutch genetic testing company Qiagen  (QGEN) - Get Report for $10 billion.

Warren Buffett’s Berkshire Hathaway  (BRK.A) - Get Report  (BRK.B) - Get Report boosted its stake in Delta Air Lines  (DAL) - Get Report last week as shares of airlines both in the U.S. and abroad posted steep declines amid the coronavirus-induced stock market rout.