Stock Market Bounces Back as Investors Bet on the Fed - Barron's

12:50 p.m.: U.S. stock indexes are rising in volatile trading, after opening solidly higher following their worst week since the financial crisis.

The Dow Jones Industrial Average was up 775 points, or 3.1%, at its highest levels of the day. The S&P 500 was up 2.7% and the Nasdaq Composite was 2.6% higher. Both briefly dipped into negative territory shortly after 10 a.m. before bouncing back into the green.

The spreading outbreak of coronavirus around the world continues to keep investors on edge. Investors have stampeded into safe-haven U.S. Treasuries, sending prices higher and causing yields, which fall when the price of a bond rises, to plummet. The yield on the 10-year U.S. Treasury note fell to 1.072%.

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Remarks from Federal Reserve chair Jerome Powell on Friday meant to soothe fearful investors were echoed by Japan’s central bank governor over the weekend. Both indicated that they stand ready to ease monetary policy should financial or economic conditions require it. Prices in the futures market now imply a 100% probability of a 0.5 percentage-point cut in the fed-funds rate at the March 17-18 meeting of the Fed’s rate-setting committee. The current target range is 1.50% to 1.75%.

Gold, another haven asset, rose 2.2% on Monday morning. The price of oil also gained 5.4%, coming off a loss of more than 16% last week. The market’s so-called fear gauge, the VIX volatility index, dropped 15% to 34 after spiking from below 15 to almost 50 points last week.

The S&P 500’s 11 sectors were all higher on Monday. Consumer staples and utilities—the more defensive sectors—led the market higher, up 3.6% and 4.3%, respectively. The more cyclically sensitive consumer discretionary group was the top laggard, up 1.6%. All of the Dow’s 30 components were up. Walmart (ticker: WMT) and Apple (AAPL) were the index’s best performers, each up over 6%.

The novel form of coronavirus—referred to as Covid-19—continued to spread over the weekend. A large majority of new cases have been coming from outside of China, where the virus emerged. South Korea, Italy, and Iran are among the most affected, with a rising number of people testing positive in Japan, France, and Singapore. The U.S. reported its 62nd case and second death from Covid-19 on Sunday.

According to data from the World Health Organization on Sunday, there were 87,137 confirmed cases globally, including 79,968 in China and 7,169 in 58 other countries. Almost 3,000 people have died from Covid-19 world-wide.

The economic damage also has the potential to be significant as health authorities work to slow the disease’s transmission. Closures of manufacturing facilities disrupt supply chains across industries, while canceled public events and closed shopping areas hit consumer spending. Monday morning’s February manufacturing survey from the Institute for Supply Management confirmed that the effects of the virus have begun to depress activity and sentiment.

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The near impossibility of predicting how far the virus will spread, and how long it will last, has many investors bracing for the worst. The Dow fell over 12% last week, while the S&P 500 dropped 11.5% and the Nasdaq lost 10.5%. Each index had its worst week since markets crashed in 2008 during the financial crisis.

All three large-cap U.S. indexes rallied into the close on Friday afternoon. The Nasdaq managed a slight 0.01% gain on the day, while the Dow and S&P 500 each finished well off their earlier lows.

The steep drop has made practically every U.S. stock appear attractive on a variety of fundamental and technical measures, but with so much still unknown, a lasting bounceback rally may be hard to get.

Write to Nicholas Jasinski at nicholas.jasinski@barrons.com

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2020-03-02 17:56:00Z
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