Last week, the US Stock market faced a steep fall and the US economy took a major hit. To bring stability and reduce pressure, on Tuesday, Fed cut down its rate by a half-point. Post the announcement, the stocks went wild and there was a substantial drop in the DOW index. The sudden rate cut confirms the fact that the US economy is struggling and this is why investors decided to step away from the market. As a result, the stocks took a nose dive till the closing bell rang for the day.
At a point in the day, the DOW (INDU) was down by a huge 997 points, however, at the end of the day, the index closed with 786 points in the negatives or a 2.9% decline post the rally on Monday. The S&P 500 index (SPX) finished the day 2.8% lower, this drop was unforeseen as the index had its highest gain since the last two years on this Monday. On the other hand, the Nasdaq composite index (COMP) closed with a 3% loss.
While it is good for stocks that the interest rates have been cut down by the Fed, but it is also alarming if we see the broader picture. Such a rate cut shows that the US economy is about to stumble and this further creates a dicey situation for the investors.
Jerome Powell, Fed chairman, expresses that the US economy is in a good position. However, the stress on the tourism and supply chain industry was apparent and it turned out to be the basis of sentiment in the market. Even though Fed spokesperson was strictly against rate cut in the last week, on Tuesday they popped a surprise to the market which wasn’t gleefully accepted and hence led to the decline.
In light of the recent Coronavirus outbreak, the rate cut will also help the global economy to get a headroom. Given the fact that the major economies of the world are mostly struggling as an effect of the virus outbreak, the rate cut is a good call according to the experts. With such a half-point rate cut, it is expected that the dollar value will also come down subsequently. As of yet, the market hasn’t faced the major impact of coronavirus and still, it has dropped substantially. The decision from the Fed will help the global market sustain the recession that is expected to strike the market in the coming days according to the experts.