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Stalled Senate Vote Roils Markets
U.S. equities finished lower in another roller-coaster ride of a day, with the uncertainty of a near $2.0 trillion fiscal stimulus package remaining after Congress was unable to pass the legislation for a second time today. Expectations continue to run high that Congress will eventually vote in favor of a deal, but the delay has kept the markets on edge. The drama in Washington overshadowed the massive monetary policy stimulus measures announced by the Federal Reserve this morning. The Fed said it will purchase Treasuries and mortgage-backed securities "in amounts needed," along with plans to buy corporate bonds, support the municipal bond market functioning, and a lending program to aid small-and-medium sized businesses. Treasury yields were lower in continued volatile trading and the U.S. dollar trimmed a recent rally, while crude oil prices were higher and gold jumped. Markets in Europe and Asia finished lower.
The Dow Jones Industrial Average fell 582 points (3.0%) to 18,592, the S&P 500 Index lost 68 points (2.9%) to 2,237 and the Nasdaq Composite declined 19 points (0.3%) to 6,861. In heavy volume 1.6 billion shares were traded on the NYSE and 4.3 billion shares changed hands on the NASDAQ. WTI crude oil rose $0.73 to $23.36 per barrel and wholesale gasoline was down $0.20 at $0.41 per gallon. Elsewhere, the Bloomberg gold spot price soared $55.95 to $1,554.60 per ounce, while the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% lower at 102.42.
U.S. stocks finished lower as volatility remained high following last week's sharp tumble that was the worst since the financial crisis as discussed in the Schwab Center for Financial Research's (SCFR) article, Week in Review: Another Bumpy Week for Stocks. Uncertainty remained elevated regarding the economic and earnings impact of the spreading of the COVID-19 (coronavirus) pandemic, which has several states and countries around the globe on lockdown and social distancing being embraced. Today's weakness came as a nearly $2.0 trillion fiscal stimulus package remains elusive after stumbling in a procedural vote yesterday, due to disagreements pertaining to what areas of the economy and which entities will be targeted by the stimulus program. A second vote in Congress today on the stimulus package also failed to pass, even with equity news recently delivering increased store closures, manufacturing facility shutdowns, and a host of companies withdrawing earnings guidance, along with some layoff and furlough announcements, particularly from the travel and leisure industries.
Dow member Boeing Company (BA $106) was in focus after being halted before it announced that it will temporarily suspend production operations at its Puget Sound area facilities in light of the state of emergency in the Washington state and the company's continuous assessment of the accelerating spread of the coronavirus in the region. Shares of BA finished higher.
For a brief moment before the opening bell, the equity markets swiftly turned positive after posting a downside maximum drop of 5.0% in overnight trading, known as "limit down," which triggered again a trading halt. The short-lived upside reversal stemmed from the Federal Reserve announcing purchases of Treasuries and mortgage-backed securities, "in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy." The Fed also said it will buy corporate bonds and expand its Commercial Paper Funding Facility (CPFF), aimed at facilitating the flow of credit to municipalities. Moreover, the Fed said it expects to announce soon the establishment of a Main Street Business Lending Program to support lending to eligible small-and medium sized businesses, complementing efforts by the Small Business Administration (SBA). The Fed's bolstered stimulus campaign augments recent measures to try to combat the dislocations in the markets, such as deploying actions in the money markets, supporting commercial credit activity, and boosting its firepower in the overnight lending markets. Amid this backdrop, check out the article from the SCFR, titled, Market Volatility, Trading Halts, and Circuit Breakers, as well as Schwab Director of Fixed Income and Planning, Cooper Howard's, CFA, commentary, Coronavirus Fears Affect the Municipal Bond Market.
Schwab Chief Investment Strategist Liz Ann Sonders discusses in her article, Panic is Not an Investment Strategy, why sometimes doing nothing may be the best response in the midst of rampant market volatility. As well, you can get timely news and analysis from Schwab experts in the SCFR on Twitter at @SchwabReserach
Treasury yields see pressure as volatility continues
Treasuries saw demand as the extreme volatility in the markets continued in the wake of the Fed's ramped-up stimulus measures and as the markets continue to wait to see if U.S. lawmakers will deliver a near $2.0 trillion fiscal stimulus package. The yield on the 2-year note declined 6 basis points (bps) to 0.31%, the yield on the 10-year note dropped 19 bps to 0.77%, and the 30-year bond rate decreased 22 bps to 1.33%. Schwab's Chief Fixed Income Strategist Kathy Jones discusses the bond yield environment in her article, After the Fall: Why You Should Hold Bonds Even When Yields Are Low, noting that historically, there has been no better hedge against an equity market decline than long-term Treasury bonds. Kathy adds that we continue to believe that most investors should have an allocation, however modest, to high-quality bonds of intermediate or longer duration as it can mean the difference between being able to meet your current obligations, including paying taxes, and having to liquidate stocks when the market is plummeting. However, Kathy notes that investors should be cautious about lower-quality, riskier fixed income investments, such as high-yield corporate bonds, bank loans, and preferred securities, as although their yields have risen as their prices plunged, she says prices may continue to fall if the coronavirus threat remains high.
For our analysis of how investors can deal with wild market swings, check out our Q&A With Schwab Experts on Recent Market Volatility, as well as our commentary, Do's and Don'ts for the Next Bear Market.
Today's economic calendar was void of any major releases, but the ball will get rolling tomorrow with the releases of the preliminary manufacturing and services PMIs as reported by Markit, with economists projecting respective readings of 44.0 and 42.0, with 50 the level that divides expansion and contraction in activity, as well as new home sales for February, expected to have declined 1.8% month-over-month (m/m) to an annual rate of 750,000. The Richmond Fed Manufacturing Index will round out the docket, forecasted to decline to -10 from the prior month's -2 with zero the demarcation point between expansion and contraction.
As noted in our latest Schwab Market Perspective: Coronavirus Hits Markets Hard, there is no one-size-fits-all answer for how to respond to an event such as coronavirus. If you're a younger investor who is saving and investing for a distant goal, such as retirement, the best action to take may be no action at all. If you've built a portfolio that matches your time horizon and risk tolerance, and you don't expect to need money from it anytime soon, it's usually best to stick to the investing plan you developed when markets were calm.
Europe and Asia fall as pandemic continues to roil the markets
European equities remained lower amid the overnight disappointment from the snag of a near $2.0 trillion U.S. fiscal stimulus package in Congress yesterday. Stocks fell back in the red after trimming the downside move briefly following another dose of measures from the Federal Reserve to combat to impact of the COVID-19 pandemic. Europe remains hampered by the spreading coronavirus that has shifted the epicenter of the outbreak to the region, leading to many key countries going on lockdown to exacerbate the outlook for the economic impact. The euro traded higher versus the U.S. dollar, but the British pound reversed lower in late-day action. Bond yields in the region—outside Spain, Portugal and Greece—finished lower. Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, notes that we all know what is driving the market selloff, COVID-19, but addresses who is doing the selling in his commentary, Who Fueled The Fastest Bear Market Ever?
The U.K. FTSE 100 Index was down 4.3%, France's CAC-40 Index declined 3.3%, Germany's DAX Index decreased 2.1%, Spain's IBEX 35 Index dropped 3.3%, Italy's FTSE MIB Index traded 1.1% lower, and Switzerland's Swiss Market Index moved 5.4% to the downside.
Stocks in Asia mostly tumbled again to begin the week, with the global markets remaining hampered by the expected extreme economic and health impacts of the COVID-19 pandemic, exacerbated by the highly-anticipated near $2.0 trillion U.S. fiscal stimulus package that hit a snag in the Senate over the weekend. India's S&P BSE Sensex 30 Index felt the brunt of the heavy selling pressure, plunging 13.2%, while Australia's S&P/ASX 200 Index fell 5.6% and South Korea's Kospi Index dropped 5.3%. China's Shanghai Composite Index traded 3.1% lower and the Hong Kong Hang Seng Index declined 4.9%. However, Japan's Nikkei 225 Index bucked the trend, rising 2.0% despite some strength in the yen, with some noting that the relative resilience regarding the surging coronavirus infection rates appeared to foster the advance, per Bloomberg. Schwab's Jeffrey Kleintop, offers his commentary, Q&A on COVID-19: The Economy, Markets and What Investors Should Do, noting that rather than trying to call the bottom, a more effective way to think about investing right now is to focus more on the duration rather than the decline.
In addition to the slew of manufacturing and services PMIs that will be released abroad, the only other item on the international economic calendar includes the Leading Index from Japan.
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Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.
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