Stocks have seen considerable volatility over the course of morning trading on Tuesday as traders react to an emergency interest rate cut by the Federal Reserve. The major averages have spent the morning bouncing back and forth across the unchanged line.
Currently, the major averages are posting modest gains. The Dow is up 35.85 points or 0.1 percent at 26,739.17, the Nasdaq is up 29.05 points or 0.3 percent at 8,981.22 and the S&P 500 is up 10.52 points or 0.3 percent at 3,100.75.
The choppy trading on Wall Street comes after the Fed announced its 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.
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!”
The surprise rate cut initially drove stocks higher, although buying interest has waned since then due 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.
Gold stocks have moved sharply higher over the course of the morning, with the NYSE Arca Gold Bugs Index spiking by 5 percent.
The rally by gold stocks comes amid a substantial increase by the price of the precious metal, as gold for April delivery is jumping $29.80 to $1,624.60 an ounce.
Interest rate-sensitive housing, commercial real estate, and utilities stocks have also shown strong moves to the upside in reaction to the emergency rate cut by the Fed.
Steel and tobacco are also seeing notable strength, while oil service and banking stocks have come under considerable selling pressure.
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 have all shown strong moves to the upside on the day. While the German DAX Index has surged up by 1.7 percent, the U.K.’s FTSE 100 Index and the French CAC 40 Index are both up by 1.8 percent.
In the bond market, treasuries have climbed back near the unchanged after the surprise rate cut by the Fed. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is down by less than a basis point at 1.085 percent.
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