Before The Bell - The stock market put in another rocky session on Monday, despite aggressive actions by the Federal Reserve over the weekend to lower interest rates and provide liquidity.
The Fed reduced its benchmark interest rate to near zero, mirroring a step taken during the credit crisis more than a decade earlier. In addition, the central bank indicated that it will be purchasing $700 billion in securities in a move known as "quantitative easing". The $700 billion would consist of $500 billion in U.S. Treasury obligations and $200 billion in mortgage-backed securities, the latter of which tend to be of longer duration.
The goal is to keep the business interruptions caused by the coronavirus outbreak from having an even deeper effect on the economy. The cancellation or curtailment of travel, concerts, sporting events, school schedules, and other activities has led to a shutdown of much of what makes up the normal way of life in America.
In turn, there is clear damage being done to corporate profits, and that has understandably made investors nervous. Just how bad it will get or how long it way take to get back to the way things were before the coronavirus hit is unclear. However, shutting down activities now may stem the spread of the illness and avoid a worse outcome later.
The federal government is preparing an aid package aimed at helping workers in hard-hit sectors, such as airlines, hotels, and cruise ships. In fact, Congress may pass more than one piece of legislation to stimulate the economy.
As for stocks, the market took a dim view of the prospect that the economy might be grinding to a halt for a while. The Dow Jones Industrial Average fell by the most, point-wise, in history on Monday, by turning in a 2,997 point decline. Elsewhere, the S&P 500 swooned by 325 points and the NASDAQ tumbled 970 points.
The key unknown remains when the hit from the coronavirus passes. Word from a Presidential press conference near the market close suggesting that it might take until July or August for the effects of the virus to wind down was taken as a negative. Even so, the silver lining is that stocks are much cheaper now than a month ago. There is a lot of cash building on the sidelines waiting for a chance to get back in the market. - Robert Mitkowski