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Major Averages Firmly In The Red In Mid-Day Trading

wallstreet oct04 03mar20

After moving sharply higher over the course of the previous session, stocks have seen considerable volatility during trading on Tuesday. The major averages have shown wild swings as the day has progressed, bouncing back and forth across the unchanged line.

Currently, the major averages are firmly in negative territory. The Dow is down 332.84 points or 1.3 percent at 26,370.48, the Nasdaq is down 69.00 points or 0.8 percent at 8,883.17 and the S&P 500 is down 27.99 points or 0.9 percent at 3,062.24.

The choppy trading on Wall Street comes after the Federal Reserve announced a surprise decision to cut rates by 50 basis points to 1 to 1-1/4 percent.

The Fed was widely expected to wait until its next monetary policy meeting later this month to announce the rate cut.

In the accompanying statement, the Fed said the fundamentals of the U.S. economy remain strong but noted the coronavirus poses evolving risks to economic activity.

The central bank added that it is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy.

However, Fed Chairman Jerome Powell indicated during a subsequent press conference that additional stimulus would come in the form of further rate cuts rather than tools like quantitative easing.

The surprise move by the Fed came shortly after finance chiefs from the world's largest economies released a statement pledging to use "all appropriate policy tools" to address the economic fallout from the deadly coronavirus outbreak.

Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell led a conference call with the G7 Finance Ministers and Central Bank Governors to discuss the coronavirus.

In the statement released following the call, the G7 finance chiefs reaffirmed their commitment to use "all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks."

The emergency rate cut, the first since the financial crisis, also came after President Donald Trump ramped up pressure on the Fed to lower rates.

"Our Federal Reserve has us paying higher rates than many others, when we should be paying less," Trump said in a post on Twitter. "Tough on our exporters and puts the USA at a competitive disadvantage."

"Must be the other way around. Should ease and cut rate big," he added. "Jerome Powell led Federal Reserve has called it wrong from day one. Sad!"

Trump called for even more "easing and cutting" after the Fed cut rates, calling on the central to "come into line with other countries/competitors."

The surprise rate cut initially drove stocks higher, although buying interest has waned since then due in part to the delayed impact of monetary policy.

"We doubt today's policy action will trigger a meaningful boost to aggregate demand, but implementing rate cuts may help to mitigate some potential strains in the financial system and give a lift to sentiment," said ING Chief International Economist James Knightley.

The Fed's decision to take emergency action rather than wait for the next meeting also points to how severely the central bank expects the outbreak to impact the economy.

Sector News

Oil service stocks are seeing substantial weakness in mid-day trading, with the Philadelphia Oil Service Index plunging by 3.5 percent.

The sell-off by oil service stocks comes despite an increase by the price of crude oil, as crude for April delivery is climbing $0.92 to $47.67 a barrel.

The emergency rate cut by the Fed has also contributed to significant weakness among banking stocks, dragging the KBW Bank Index down by 3 percent.

Brokerage, software and semiconductor stocks are also seeing notable weakness following the strong upward move seen in the previous session.

On the other hand, gold stocks continue to see considerable strength on the day, with the NYSE Arca Gold Bugs Index soaring by 7.1 percent.

A sharp increase by the price of gold has contributed to the strength in the sector, as gold for April delivery is spiking $46.20 to $1,641 an ounce.

Interest rate-sensitive housing, commercial real estate and utilities stocks are also seeing continued strength in mid-day trading.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Tuesday. Japan's Nikkei 225 Index tumbled by 1.2 percent, while China's Shanghai Composite Index climbed by 0.7 percent.

Meanwhile, the major European markets all showed strong moves to the upside on the day. While the U.K.'s FTSE 100 Index jumped by 1 percent, the German DAX Index and the French CAC 40 Index both surged up by 1.1 percent.

In the bond market, treasuries have turned higher over the course of the session after seeing initial weakness. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, is down by 3.6 basis points at 1.052 percent.

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