Tuesday March 17th

17-03-2020

Stock futures drop — hit ‘limit down’ — even as Fed slashes rates; S&P 500 ETF down 10%

U.S. stock index futures were down sharply on Monday even after the Federal Reserve embarked on a massive monetary stimulus campaign to curb slower economic growth amid the coronavirus outbreak. Stock market futures hit “limit down” levels of 5% lower, a move made by the CME futures exchange to reduce panic in markets. No prices can trade below that threshold, only at higher prices than that down 5% limit. Dow Jones Industrial Average futures were off by more than 1,000 points, triggering the limit down level. S&P 500 and Nasdaq 100 futures were also at their downside limits. This led traders to look at the SPDR S&P 500 ETF Trust (SPY) — which tracks the S&P 500 — for a better indication of how the market will open. The SPY ETF plummeted 10% in the premarket, signaling that a “circuit breaker” will be triggered shortly after the regular session starts. ETFs that track the Dow and Nasdaq 100 — the SPDR Dow Jones Industrial Average ETF Trust (DIA) and Invesco QQQ Trust — were also down more than 8%. The ETFs briefly pared losses after the International Monetary Fund said it is ready to mobilize $1 trillion in lending capacity to fight the virus. While the central bank’s actions may help ease the functioning of markets, many investors said they would ultimately want to see coronavirus cases peaking and falling in the U.S. before it was safe to take on risk and buy equities again. “The Fed blasted its monetary bazooka for sure,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “This better work because I don’t know what they have left and no amount of money raining from the sky will cure this virus. Only time and medicine will.” The Fed cut interest rates down to basically zero, their lowest level since 2015. The U.S. central bank also launched a massive $700 billion quantitative easing program. President Donald Trump said he was “very happy” with the announcement, adding: “I think that people in the markets should be very thrilled.” “This, coupled with an important fiscal package, should help cushion the economic downside from the virus’ effect on economic activity,” said Quincy Krosby, chief market strategist at Prudential Financial. “It’s going to be positive, but the market is at the mercy of the virus and at the mercy of whether the containment policies work.” The Fed’s announcement came after they issued another emergency rate cut earlier this month. It also comes on the heels of the market’s biggest one-day gain since 2008, with the major averages all surging more than 9% on Friday. However, the weekend’s news about the coronavirus outbreak was not helping sentiment. U.S. cases have jumped to 3,774 and 69 deaths, according to Johns Hopkins University. The U.S. Centers for Disease Control and Prevention urged organizers to cancel or postpone events with at least 50 people. “The main problem this time as to other market disruptions is the abrupt closure of economic activity,” said Dan Deming, managing director at KKM Financial. “The speed of the impact to middle America, let alone the global community is relatively unprecedented.” Apple shares plunged by more than 11% in the premarket. Airline stocks also fell broadly. Delta and United traded at least 15% lower while American lost about 20% before the bell. Bank stocks took a hit, with Bank of America and JPMorgan Chase dropping 16.6% and 15.8%, respectively. Goldman Sachs and Morgan Stanley each traded at least 14% lower while Citigroup fell 16.8%. The big banks announced Sunday they were halting their buyback programs in an effort to provide capital where needed. The Dow and S&P 500 both fell more than 8% last week along with the Nasdaq Composite, tumbling into bear market territory. A bear market is usually defined on Wall Street as a decline of at least 20% from a high. Investors have been dumping equities amid worries the coronavirus will slow economic growth and take a bite out of corporate profits. Economists at JPMorgan see negative growth for the first quarter while Goldman Sachs downgraded its first-quarter growth forecast to flat from 0.7%. “The rapid spread of COVID-19 across the globe has dramatically heightened investor uncertainty and rocked global financial markets,” strategists at MRB Partners said in a note, adding the situation will “get worse before it gets better.” “Looking ahead, the number of active cases is likely to worsen in the near run,” they said. More than 169,000 cases around the world have been confirmed, data from Johns Hopkins University shows.

Data

In terms of data, there will be New York Empire State manufacturing numbers at 8:30 a.m. ET. There are no corporate earnings to note Monday. In other corporate news, Apple said over the weekend that it would close all its retail stores outside of Greater China until March 27. The tech giant has 510 stores around the world, 271 of which are in the U.S. Stocks in Asia Pacific tumbled on Monday as the U.S. Federal Reserve slashed its benchmark interest rate to zero and launched a massive quantitative easing program in an emergency move on Sunday. Mainland Chinese stocks dropped on the day as well, with the Shanghai composite 3.4% lower at about 2,789.25 while the Shenzhen composite slipped 4.834% to approximately 1,712.02. The Shenzhen component plunged 5.34% to 10,253.28. Hong Kong’s Hang Seng index also fell 4.38%, as of its final hour of trading. In Japan, the Nikkei 225 closed 2.46% lower at 17,002.04. The Topix index was also 2.01% lower to end its trading day at 1,236.34. South Korea’s Kospi slipped 3.19% to close at 1,714.86. Elsewhere, Singapore’s Straits Times index dropped 4.27% in afternoon trade while the Nifty 50 in India plunged 5.11%. Oil prices slid more than 8% on Monday as the acceleration in coronavirus cases worldwide, which is bringing travel and business to a standstill, further dents global demand for crude. U.S. West Texas Intermediate crude dropped 8.6%,or $2.75, to trade at $28.99 per barrel. International benchmark Brent crude fell 10.9%, or $3.71, to trade at $30.13 per barrel, its lowest level since at least Feb. 2016. Gold prices jumped in early trade on Monday after another emergency rate cut by the U.S. Federal Reserve, before paring gains as some investors sold the metal for cash amid a sell-off in equities. Spot gold was up 0.9% at $1,543.60 per ounce, having risen as much as 2.8% earlier. The metal fell 3% on Friday. U.S. gold futures rose 1.8% to $1,544.20 per ounce.