Stock rout resumes after Fed action disappoints: Markets wrap

The sell-off in U.S. stocks resumed Thursday afternoon, with investors uncertain the Federal Reserve’s extraordinary bond-buying measures will do enough to counter the economic and financial impact from the coronavirus.

The S&P 500 Index tumbled about 7% after paring losses to as low as 3% in the minutes after the Fed’s statement. Ten-year Treasury yields declined as policy makers’ move recalled the quantitative easing used during the financial crisis. Oil and precious metals slumped, with palladium falling into a bear market.

The stock rout was worldwide, with Europe’s benchmark index down 11% in a record rout. Brazil’s Ibovespa tumbled as much as 20% at one point, extending this year’s loss to almost 50% in dollar terms, and Canada’s main gauge was off more than 10%.

Investors are trying to guess at the effectiveness of policy makers’ measures to curb the spread of the coronavirus and limit its economic damage after President Donald Trump’s travel ban and tepid fiscal measures failed to impress most observers. The European Central Bank couldn’t stem the rout after it left rates unchanged, though it temporarily increased its bond buying program and took steps to boost liquidity.

“We need to see what is effectively a ‘declaration of war’ against the virus and full support to offset the economic damage that war will cost,” said Peter Tchir, head of macro strategy at Academy Securities LLC. “Whatever has gone on this week, it’s not a liquidity crunch.”

On another bruising day across markets:

• The S&P 500, Nasdaq Composite and Nasdaq 100 indexes sank deeper into a bear market, with losses from February closing records extending well past 20%.
• The slump triggered the second 15-minute trading halt this week shortly after the U.S. open.
• The MSCI All-Country World Index extended losses to enter bear-market territory.
• The Stoxx Europe 600 tumbled the most on record, with trading volumes more than double the 100-day average. The cost of insuring debt issued by Europe’s investment grade companies surged to the highest since 2013.
• Japanese stocks closed more than 4% lower even after another liquidity pledge from the country’s central bank. Australian shares were among the worst performing worldwide, sinking deeper into a bear market despite a stimulus plan there. India’s benchmark fell more than 8%.
• Oil extended losses toward 5%. Bitcoin slumped. Gold fell below $1,600 an ounce.

In a nationwide address last night, Trump unveiled steps including lending aid for small businesses and asked Congress to pass undefined payroll-tax relief, but his Oval Office speech gave the market little confidence that the U.S. is tightening its grip on the virus or its economic impact.

More bad news about the impact of the coronavirus further sapped investor spirits. The leading U.S. infectious-disease official said the testing system in the country is failing. The European Union warned of sickness threatens to exceed health-care capacity across the region “in a few weeks or even days.” The National Hockey League followed the National Basketball Association’s lead and suspended its season.

“Market moves suggest monetary stimulus has reached its limits,” said Lucas Bouwhuis, a portfolio manager at Achmea Investment. “Most of the stimulus needs to come from the fiscal side and we are just not seeing enough of that yet.”

Meanwhile, signs that companies in the hardest-hit industries were drawing down credit lines to battle the effects of the virus on their businesses added to anxiety.

“The risks have definitely risen,” said Chris Gaffney, president of world markets at TIAA. “The question is how long will this last and I don’t think anybody can predict that at this point.”

These are the main moves in markets:

Stocks

• The S&P 500 Index declined 6.5% as of 1:58 p.m. New York time.
• The Stoxx Europe 600 Index fell 11%.
• The MSCI Asia Pacific Index dipped 5.3%.
• The MSCI Emerging Market Index sank 6.5%.

Currencies

• The Bloomberg Dollar Spot Index gained 1.1%.
• The euro weakened 0.8% $1.1184.
• The Japanese yen fell 0.9% to 105.53 per dollar.

Bonds

• The yield on 10-year Treasuries sank 13 basis points to 0.74%.
• Germany’s 10-year yield fell one basis point to -0.75%.
• Britain’s 10-year yield declined three basis points to 0.26%.

Commodities

• West Texas Intermediate crude declined 6.1% to $30.96 a barrel.
• Gold weakened 2.6% to $1,593.12 an ounce.

–By Claire Ballentine, Vildana Hajric and Sarah Ponczek (Bloomberg)