US Stocks Nosedive After Fed Makes Surprise Rate Cut

The major U.S. stock indexes nosedived in a volatile session on Tuesday after the Federal Reserve spooked investors with a half percentage-point cut in interest rates, amplifying fears about the magnitude of the coronavirus’ impact on the economy.

U.S. stocks had initially strengthened during the session, following through to the upside after Monday’s stellar performance with a more than 1% gain. However, the markets plunged after the Fed rate cut because policymakers may have sent the wrong message.

In the cash market on Tuesday, the benchmark S&P 500 Index settled at 3003.37, down 86.86 or -2.94%. The blue chip Dow Jones Industrial Average finished at 25917.41, down 785.91 or -3.09% and the technology-driven NASDAQ Composite closed at 8684.09, down 268.08 or -3.13%.

Tuesday’s move was the Fed’s first emergency rate cut since the 2008 financial crisis. It also came two weeks ahead of a scheduled policy meeting, where traders had fully priced in a 50 basis point cut. Nonetheless, the move underscored how grave the central bank views the fast-evolving situation.

The biggest concern for investors was whether an aggressive rate cut, or essentially pumping more money into financial markets, would solve the central problem of a drop in business activity as workers and consumers stay home.

Stock Market Experts Respond to Fed’s Unexpected Rate Cut

‘I’m Now Nervous’

“It’s great that the Federal Reserve recognizes that there’s going to be weakness, but it makes me feel, wow, the weakness must be much more than I thought,” CNBC’s Jim Cramer said on “Squawk on the Street” right after the sudden cut. “I’m now nervous. I’m more nervous than I was before.”

‘What’s Next?’

“The rate cut underscores the magnitude of the problem that the global economy is facing,” said Peter Kenny, founder of Kenny’s Commentary LLC and Strategic Board Solutions LLC in New York.

“Normally, markets would welcome a rate cut, and they were hoping for it. Now that we’ve got it, the question is, what’s next?”

‘Real Fear’

“There is a real fear that things are going to get worse and there is no point in waiting for these fears to be realized,” Jim Bianco, president of Bianco Research in Chicago, said of the Fed’s rate cut. “You can always undo the rate cut if it fails to materialize.”