Investors are looking to policymakers to take immediate, forceful action to address the coronavirus pandemic. If the direction of markets is any indication, they have been disappointed with what they’ve seen so far.
Even after the Federal Reserve announced it would inject more than $1.5 trillion into short-term funding markets on Thursday and Friday, major U.S. stock indexes which had been down more than 7%, continued to fall. The Dow Jones Industrial Average closed down 10% — its worst showing since 1987 — and the S&P 500 index was down 5%. Both are in bear-market territory for the year.
The 10-year Treasury yield has been rising since Monday, when it closed at 0.49%. On Thursday, it closed at 0.88%, its highest close since March 5.
The Fed move was done “to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak,” according to a statement from the Federal Reserve Bank of New York.
After the Bank of England cut rates Tuesday and the European Central Bank announced measures on Wednesday to support bank lending and to expand its asset purchase program, the Euro Stoxx 600 index, which tracks the biggest listed companies in the U.K. and eurozone, closed down 11%.
President Donald Trump’s nationwide address Wednesday night to respond to the coronavirus pandemic also failed to calm markets. Trump offered expanded loan capacity for small businesses, tax payment deferral “for certain individuals and businesses negatively impacted” by the virus. He also announced a 30-day ban on travelers from Europe for the next 30 days, excluding travelers from the U.K., which infuriated the European Commission, the governing body of the European Union.
“The coronavirus is a global crisis … and it requires cooperation rather than unilateral action,” the commission said in a statement.
“The market did not hear what they wanted to hear last night,” said Gary Zimmerman, CEO of MaxMyInterest, a cash management platform for individual investors and advisors, who has seen double the traffic by both in the past few weeks.
“This is something of unknown duration,” Zimmerman said.” What are we doing to help businesses and help employees have access to health care and those who don’t go to the doctor because they can’t afford to?” Those are all policy decisions, and lowering [interest] rates will not change much of anything, nor will it reduce the cost of small-business loans.”
“We think things have become sufficiently worse so that a fiscal response is now turning to more of a question of ‘when’ and ‘how’ as opposed to ‘if,’ “ wrote researchers from Morgan Stanley, including strategist Michael Zezas and economists Ellen Zentner and Robert Rosener.