US stock markets suffer worst day since 1987 despite drastic Fed rate cut
US stock markets suffered their biggest single day fall since 1987’s infamous Black Monday crash as investors shrugged off a dramatic Federal Reserve stimulus package that aimed to support the economy during the coronavirus outbreak.
The US’s S&P 500 crashed 12 per cent over trading, the Dow Jones finished 12.9 per cent lower, and the Nasdaq ended 12.3 per cent down.
Late on Sunday night the Fed slashed its base interest rate to a range of zero to 0.25 per cent, also announcing a $700bn worth of quantitative easing in an attempt to protect markets from the ravages of the disease.
But the move only served to deepen investor fears that monetary policy cannot curb the fallout of the virus, which has now infected almost 170,000 people around the world and killed more than 6,500.
The S&P has now fallen to its lowest levels since December 2018, with US president Donald Trump warning that a recession was now a possibility.
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The index is now down some 30 per cent from its all time high, with an International Monetary Fund pledge to mobilise $1 trillion in lending having a negligible impact.
“Businesses are shutting doors globally and households are moving into quarantine,” said Michelle Meyer, US economist at Bank of America.
Andrew Sheets, chief cross-asset strategist at Morgan Stanley, said: “It is a negative shock to both supply and demand, one that is uniquely difficult for policy-makers to ‘fix’.”
“Low rates don’t solve a shortage of semiconductors if a factory needs to shut down,” he said.
Despite traders’ attitude to central bank stimulus, new Bank of England governor Andrew Bailey yesterday said Threadneedle Street stands ready to take more “prompt action” when needed to tackle the economic fallout from coronavirus.
Central bankers such as Fed chair Jay Powell have said they are aware of the limited effect monetary policy will have on supply chains in the short term, but hope their measures will support economies as the virus fades.