Getty Images / Mario Tama
US stocks rose sharply on Tuesday, posting a recovery a day after the Dow Jones industrial average’s biggest single-day drop since 1987 — its second-worst plunge in history.
All three major US indexes gained more than 5% as investors rushed back into risk assets. Unstable gains in the morning hours gave way to a solid move up around mid-day after the Federal Reserve resurrected financial crisis-era stimulus measures.
President Donald Trump also held a news conference where he said his administration could send checks to Americans within two weeks.
Monday’s drop brought the intense selling activity driven by the coronavirus outbreak into its fourth calendar week and wiped out all gains made in 2019, one of the bull market’s best annual performances.
Here’s where major US indexes stood as of the market close on Tuesday:
Overnight trading of futures contracts tied to the three indexes hit their so-called upside limit as traders bet on a sharp recovery in Tuesday’s session. The S&P 500 has always rebounded by at least 2% on Tuesdays that follow a 5% decline to start the week, according to Bloomberg. That trend was kept intact.
The Fed has continued to use its arsenal of stimulus measures to buttress the economy from a downturn due to the outbreak. Its latest actions come after the Federal Reserve Bank of New York stepped in on Monday to add $500 billion to money markets, further boosting liquidity after unveiling a $5 trillion capital-injection scheme last week.
The central bank also slashed its benchmark interest rate close to zero on Sunday for the first time since the financial crisis.
The stock market’s heightened volatility hasn’t abated after weeks of intense price swings. The VIX, Wall Street’s preferred gauge of investor fear, surged to highs not seen since the financial crisis on Monday as the coronavirus sell-off intensified.
Airline stocks were again down sharply after a dismal day of trading on Monday. Airlines for America — which represents the largest US passenger and cargo airlines — has asked for a combined $54 billion in loans from the government to pad the outbreak’s impact and boost the firms’ balance sheets.
The White House’s announcement arrived as investors had been hoping for fiscal stimulus akin to 2008’s TARP policy, Shawn Synder, head of investment strategy at Citi Personal Wealth Management, told Markets Insider. Economic data released through April will provide the next sign of whether such relief measures work as intended, as the latest updates haven’t captured the sharp uptick in economic fallout, he said.
“We have very little to go on right now. If you’re an investor, it’s like you’re trying to navigate without Google Maps,” Syder said in a phone interview.
Any sign of stabilization in US infections would also aid plummeting markets, he added. It remains unclear whether the US is going to mimic Italy’s almost-total shutdown or the faster containment scenarios seen in Japan and Singapore. The next three weeks of infection data are “determinate on whether we can blunt the curve,” Synder said.
Other investors are eyeing corporate credit health as a key indicator of how intense the virus will rock the US economy. The speed of the market’s recent sell-offs signals a deeper end to the corporate credit cycle than previously expected, Jamie Studdard, head of global macroeconomics at Robeco, and Fabiana Fedeli, Robeco’s head of fundamental equities, told Markets Insider.
The Federal Reserve’s latest rate cut will likely be its last before turning to other stabilization tools like yield curve control and Treasury purchases. Such policy would widen the spread between corporate bond yields and Treasurys, setting up a “once-in-a-decade opportunity” for investors waiting to buy up corporate credit, the team said.
“That time hasn’t come just yet, but will soon, and will be a notable and rare opportunity to access corporate bonds at exceptionally attractive levels,” they added.
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