U.S. stocks have resumed their downturn after Friday’s rally amid extremely volatile trading. After opening limit down on Monday, for the third time since a week ago, triggering a trading halt, then falling further on the reopening, stocks recovered some of their early morning losses. By late morning the S&P was down 5.7% and the Dow Jones Industrial Average off 7.5%.
Bonds also reversed their recent trading behavior in early morning trading, with yields falling after rising several sessions last week. Bonds yields usually fall when stock prices decline, especially at times of growing concerns about a possible recession, and that’s what happened Monday morning. But by late morning, the 10-year Treasury yield was rising again, at 0.85%, up about 10 basis points from the open.
A second surprise rate cut by the Federal Reserve on Sunday, like the first one on March 3, failed to calm markets.
The Fed slashed the federal funds rate Sunday evening by 1% to a range between zero and 0.25%, days before the start of the Federal Open Market Committee’s regularly scheduled policymaking meeting. The latest cut followed a 50 basis-point cut on March 3.
The Fed also announced a revived quantitative easing program to purchase at least $700 billion in U.S. Treasuries and mortgage-backed securities, which followed plans announced last week to inject as much as $1.5 trillion into the short-term money markets.
“To move like this three days before the meeting tells me to expect an avalanche of horrible data in the next few weeks,” tweeted David Rosenberg, chief economist and strategist of Rosenberg Research and Associates Inc.
Also on Sunday, Goldman Sachs forecast a 5% decline in U.S. GDP for the second quarter and its U.S. chief equity strategist, David Kostin, slashed his forecast for the S&P 500, noting it could fall another 26% from Friday’s close to 2,000 if the economic fallout from the spreading coronavirus worsens.
“The coronavirus has created unprecedented financial and societal disruption,” he wrote in a note to clients. “The combination of thin liquidity, high uncertainty, and positioning could cause the S&P 500 to fall below our 2,450 base case estimate of fair value and closer to a trough of 2,000.”
Recession fears are growing for the U.S. — a Bloomberg survey of economists gave 45% odds for one this year — and globally.
Whole countries are under lockdown and throughout the U.S. schools, theaters, gyms and other gathering places have shut down; all National Basketball Association, National Hockey League and U.S. Soccer games are canceled along with the NCAA annual tournament (March Madness); and many businesses, including financial firms, are advising or mandating that workers work from home.