Dow Industrials, S&P 500 Drop After Big Monday Gain

By Anna Isaac and Xie Yu 

U.S. bounced back Tuesday after the Federal Reserve followed through on a pledge that it stood ready to take action to combat economic risks related to the coronavirus.

The Dow Jones Industrial Average rose about 321 points, or 1.2%, to 27007, reversing a decline after the opening bell after the Federal Reserve cut its short-term interest rate by 0.5 percentage point.

The S&P 500 advanced 1% and the Nasdaq Composite rose 0.7%, following Monday's sharp rally.

Global markets had earlier pared gains after finance ministers and central bankers from the Group of Seven countries said they were ready to use "all appropriate policy tools" -- including possibly fiscal stimulus measures -- to guard against economic risks from the coronavirus. The statement helped assure investors that officials are closely monitoring the situation. But for some, it fell short of the more specific and detailed coordinated policy response they had sought.

"People will want to see something firm underneath the language," said Gregory Perdon, co-chief investment officer at Arbuthnot Latham investment management. "The proof is in the pudding, put some numbers on the table."

Hopes for a wave of stimulus helped drive the Dow up 5.1% on Monday, its biggest gain in more than a decade.

"This talk of concerted and coordinated action from central banks has had a reaction, but what form that takes, time will tell," said Russ Mould, investment director at AJ Bell. "Cutting interest rates is not going to make someone take a flight to Italy if they're too scared to do it."

Selling was broad Tuesday, with all 11 sectors of the S&P 500 trading lower.

One group that did bounce higher: airline stocks. United Airlines Holdings added 2.6% and Delta Air Lines climbed 5.5%. The travel industry has taken a particularly hard hit in bouts of selling related to the coronavirus over the past couple of weeks.

Elsewhere, the Stoxx Europe 600 rose 2.5%.

Airlines were also among the best-performing stocks in Europe on Tuesday, with Deutsche Lufthansa advancing 8.3%.

Stock performance was more muted in Asia, as a strong rally faded through the course of the day. Hong Kong's Hang Seng Index closed mostly flat, while Japan's Nikkei 225 dropped 1.2% and China's Shanghai Composite closed 0.7% higher.

In bond markets, the yield on the benchmark 10-year U.S. Treasury rose to 1.134%, from 1.085% Monday. Yields rise as bond prices fall.

Bond futures are pricing in a 100% chance of interest rates being 0.5 percentage point lower by the March meeting, and a more than 70% chance that rates will be 0.75 percentage point lower than by April, according to the CME FedWatch tool.

Some analysts and investors questioned how effective monetary policy could be in counteracting the economic effects of a public health crisis.

"Cutting rates helps boost investors' confidence, but it won't help sick or quarantined people get back to work," said Bruce Pang, head of macro and strategy research at China Renaissance Securities (HK) Ltd. Fiscal policy would be more effective than action from central banks, whose results would be indirect and distorted, Mr. Pang said.

Akane Otani contributed to this article

Write to Anna Isaac at [e-mail] and Xie Yu at [e-mail]

(END) Dow Jones Newswires

March 03, 2020 10:19 ET (15:19 GMT)

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