U.S. stocks plummeted while safe-haven assets rallied on opening bell March 16, even as the Federal Reserve announced emergency monetary measures March 15, including a rate cut and other steps to boost credit supply to American businesses affected by the coronavirus outbreak.
A sharp drop in the S&P 500 triggered a 15-minute long trading shutdown when the exchange opened, with the benchmark index falling about 8 percent to trip its level one circuit breaker. The Dow Jones Industrial Average crashed 2,700 points at the stock market open, also triggering a temporary shutdown. Trading on both exchanges has resumed.
The plunge in stocks comes after the Federal Reserve slashed its rates to near zero March 15 and announced a range of financial crisis management measures, including $700 billion in quantitative easing.
President Donald Trump said he was “very happy” with the Fed’s announcement, adding: “I think that people in the markets should be very thrilled.”
But the move failed to soothe investor anxiety, with stock futures plummeting after the announcement in overnight trading to trigger a “limit down” trading circuit breaker.
Trading shuts down when a futures stock market hits “limit down” levels of 5 percent lower, a policy introduced to reduce panic in markets. Trading is active again when prices climb above the down 5 percent limit.
All three major stock market futures exchanges—the Dow Jones Industrial Average, S&P 500, and Nasdaq 100 futures—hit their downside limits in overnight trading.
“Sunday’s policy measures communicated pure panic, so the markets are rightfully panicking,” said Allen Sukholitsky, chief macro strategist at Xallarap Advisory, in an emailed statement to The Epoch Times. “For almost a year now, we have been advising investors to expect weaker growth, lower rates, and turbulent markets. Unfortunately, that time has arrived.”
After the S&P 500 reopened at 9:46 a.m. ET, the index first inched toward its second-level trading curb, which is set at 13 percent, before pulling back and trading at around 8 percent at 10:29 am ET, according to TradingView.
In morning trading, all three main Wall Street exchanges—the Dow, Nasdaq, and S&P 500—fell over 10 percent, with the Dow briefly falling as low as 12 percent.
In a sign that safe-haven buying was in play, investors fled into the low-risk refuge of U.S. government bonds, with the yield on the benchmark 10-year U.S. Treasury note dropping to 0.751 percent at 9:49 am ET on March 16, according to TradingView data.
The big downside moves in risk assets came in spite of the Fed’s massive campaign to stimulate the economy in the face of the coronavirus slowdown and to prevent broader financial contagion.
Vowing to use the “full range of tools” to support the flow of credit to households and businesses, the Fed announced a broad range of crisis measures, including ones relating to the discount window, intraday credit, bank capital and liquidity buffers, as well as reserve requirements.
The central bank is also coordinating its response internationally, including by activating dollar swap lines with five other central banks to prevent a global dollar-denominated liquidity crunch.
The Fed also said it was “prepared to adjust its plans as appropriate,” signaling readiness for more intervention in the event of a material change in the economic outlook.
The Fed already cut interest rates by half a percentage point on March 3 at an emergency meeting—the first rate cut outside of a regularly scheduled policy meeting since the financial crisis in 2008.
Fed policymakers were not due to hold their next interest-rate setting meeting until March 17-18.
U.S. cases of coronavirus have jumped to over 3,800 and 69 deaths, according to a Johns Hopkins University tally.
The U.S. Centers for Disease Control and Prevention has urged organizers to cancel or postpone events with at least 50 people.
Europe Tightens Rules Around Short-Selling
Meanwhile, Europe has tightened its rules around short-selling in an effort to contain the kind of wild market fluctuations that have gripped Wall Street and that have also hit European exchanges.
Hedge funds and other investors will have to give regulators more information about the bets they are taking, the European Union’s markets watchdog announced on Monday, warning that a markets slump triggered by the coronavirus could last weeks.
The European Securities and Markets Authority (ESMA) said it had lowered the threshold for reporting short-selling to regulators for the next three months as current trading conditions posed a “serious threat” to “fragile” markets.
“There is a clear risk that such downward trend will continue in the coming days and weeks,” ESMA added of the market sell-off triggered by the spread of COVID-19, which is caused by the coronavirus.
In short-selling, traders borrow a company stock with a view to selling it, hoping to buy it back later at a lower price and pocket the difference.
When the number of short-sellers outweighs those buying the stock, which could happen if investors rush to sell amid panic over coronavirus, that can further drive down the price of shares.
Market fluctuations can be further exacerbated by exotic options strategies that may be fueled by automated trading algorithms.
Reuters contributed to this report.