Major Averages Posting Steep Losses In Mid-Day Trading

After moving sharply lower early in the session, stocks have climbed off their worst levels but continue to see substantial weakness in mid-day trading on Monday. Earlier in the day, the Dow hit a three-year intraday low, while the Nasdaq and the S&P 500 hit their lowest levels in over a year.

Currently, the major averages continue to post steep losses. The Dow is down 1,580.37 points or 6.8 percent at 21,605.25, the Nasdaq is down 496.85 points or 6.3 percent at 7,378.03 and the S&P 500 is down 169.93 points or 6.3 percent at 2,541.09.

The initial sell-off on Wall Street came as traders cashed in on last Friday’s strong gains amid escalating concerns about the economic impact of the coronavirus pandemic.

Central banks around the world, including the Federal Reserve, are taking steps to provide economic stimulus to combat the effects of the virus, but the moves only seem to be exacerbating concerns about the impact of the outbreak.

On Sunday, the Fed took the unusual step of slashing interest rates by 100 basis points just days ahead of its scheduled monetary policy meeting this week.

The Fed lowered the target range for the federal funds rate to zero to 0.25 percent from 1 to 1.25 percent, noting the coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the U.S.

The central bank said it expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.

In addition to cutting rates, the Fed also announced a new quantitative easing program, revealing plans to increase its holdings of Treasury and mortgage-backed securities by at least $700 billion.

“The Fed’s decision to slash interest rates to near-zero won’t stop the economy falling into a recession, but the package of liquidity-boosting measures will help prevent credit markets seizing up, reducing the risks a deeper downturn,” said Michael Pearce, Senior U.S. Economist at Capital Economics.

He added, “We expect the Fed to do whatever it takes to keep markets functioning smoothly, and to announce further QE & forward guidance to support demand should the crisis worsen significantly.”

The drastic moves by the Fed, which come ahead of the two-day monetary policy meeting set to begin on Tuesday, have raised some concerns that central banks around the world will run out of ammunition to deal with a deepening crisis.

Stocks also moved sharply lower after the Fed announced an emergency 50 basis point rate cut earlier this month.

In a sign of the economic impact of the outbreak, the New York Fed released a report this morning showing New York manufacturing activity unexpectedly contracted in the month of March.

The New York Fed said its general business conditions index plunged to a negative 21.5 in March from a positive 12.9 in February, with a negative reading indicating a contraction in regional manufacturing activity.

Economists had expected the general business conditions index to show a much more modest decrease and remain positive at 4.0.

The steeper than expected represented the largest point decrease on record and dragged the index down to its lowest level since 2009.

Sector News

Housing stocks continue to turn in some of the market’s worst performances despite the interest rate cut, with the Philadelphia Housing Sector Index plunging by 12.6 percent to its lowest intraday level in well over a year.

Substantial weakness also remains visible among banking stocks, as reflected by the 11.4 percent nosedive by the KBW Bank Index. The index fell to a new three-year low intraday low earlier in the session.

Steel stocks are also pulling back sharply after seeing considerable strength in the previous session, moving significantly lower along with commercial real estate, chemical and computer hardware stocks.

Most of the other major sectors have also shown notable moves to the downside, although gold stocks are bucking the downtrend as the price of the precious metal has climbed well off its worst levels.

Other Markets

In overseas trading, stocks markets across the Asia-Pacific region moved sharply lower during trading on Monday. Japan’s Nikkei 225 Index tumbled by 2.5 percent, while China’s Shanghai Composite Index tanked by 3.4 percent.

The major European markets have climbed off their worst levels of the day but continue to see substantial weakness. While the French CAC 40 Index is down by 5.3 percent, the German DAX Index and the U.K.’s FTSE 100 Index are both down by 4.4 percent.

In the bond market, treasuries are rebounding after pulling back sharply over the past several sessions. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, is down by 13.5 basis points at 0.816 percent.

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