All three major US stock indexes were eviscerated on Monday, just 24 hours after the Federal Reserve held an emergency meeting and cut interest rates to zero.
Both the Dow Jones Industrial Average and the S&P 500 had their worst day since the “Black Monday” crash of 1987, with the S&P sliding 12% and the Dow turning in its third-worst day ever, falling 12.9%.
The NASDAQ had its single worst day every, dropping 12.3%.
With record-setting days for two of the indexes, it shouldn’t come as a surprise that the volatility index, the VIX, which is used by many to measure how much fear there is in the markets, saw its highest close ever at 82.69. It beat the previous record of 80.74 set during the depths of the financial crisis.
The trading day started with the markets being halted for 15 minutes shortly after the open when the S&P dropped more than 8%, triggering the so-called “circuit breakers” to prevent a full-on panic sell and maintain order.
It didn’t do much good, as the market continued sliding throughout the day, despite the Fed’s announcement of slashing interest rates to zero and more than $750 billion in monetary relief less than 24 hours earlier.
Even with zero percent interest rates and billions of stimulus money, investors are cautious to invest money back into the market without knowing how the coronavirus will impact the US.
“Although the contemporary crisis is loaded with bad news, this has not been its primary problem. It’s the ‘unknown,’” said Jim Paulsen, The Leuthold Group’s chief investment strategist. “Not even health experts understand what this is or where it is headed, and that is the worst possible outcome for investors. Give me bad news any day over complete uncertainty”
Frank Cappelleri, executive director at Instinet, said in a note: “The markets are getting no break with yesterday’s historic Fed actions and COVID-19 dominating the world’s headlines. While the news continues to worsen and with the price action doing things we’ve only seen a handful of other times in the last century, it’s nearly impossible to keep things in perspective.”
“We can’t argue the facts, and we’re dealing with a much bigger issue than just the economy.” he added.
Even President Trump, a day after praising the Federal Reserve for finally lowering interest rates to combat the economic slowdown caused by the coronavirus, said that the outbreak could last well into August and that the US “may be” heading into a recession.
It’s going to take a clear indication that the worst of the outbreak has passed before many investors would be willing to invest in the market again, particularly with so many industries looking for bailouts to survive the crisis.
Yesterday the US airlines asked for a $50 billion bailout in direct aid and loan guarantees to keep the industry afloat, to which President Trump later said at a press briefing “We’re going to back the airlines 100% – it’s not their fault. We’ll be backstopping the airlines and helping them very much.”
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