US Stock Market Overview – Stocks Drop Sharply Despite Fed Rate Cut

US stocks tumbled on Monday, despite the Federal Reserve cutting rates to zero in Sunday and the central bank staring its bond purchase program. This was a historical move by the Fed which was largely brushed off by the market. All three major average moved lower, with the Dow falling the most down nearly 12%.  Small caps underperformed with the Russel 200 falling nearly 14%. All sectors in the S&p 500 index were lower, driven down by a 16% drop in Real estate. Consumer staples were the best performers declining by 5.5%. the S&P 500 is now down 29% from its highs on February 19. US bond yields were down to 0.73%. Gold prices tumbled along with Silver which was down nearly 20% on the session. Oil prices continued to move lower falling 9% and closing below $30 a barrel for the first time since 2016. The US airlines were in talks with the government to obtain a loan. President Trump in a press conference today said that they would backstop the airlines as “it was not their fault”.

US Airlines Ask for Financial Assistance

Airlines are talking to the US the government to obtain at least $50 billion in financial assistance, which is more than three times the size of the industry’s bailout after the Sept. 11 attacks. The President in a press conference on Monday said they would backstop the airlines. The exact form and amount of aid carriers are seeking is under discussion and could include cash grants or other measures including relief from taxes and fees. Airlines have been stunned by the rapid plunge in their bookings as the novel coronavirus has spread around the world.

The Fed Goes Into Action

On Sunday the Fed cut interest rates to zero and initiated a 700-billion bond purchase program. On Monday, the Fed offered eligible banks three repurchase agreement operations. In the one-day interventions, so-called primary dealers sought $129.6 billion in loans versus the $175 billion the Fed was willing to provide. There were also two Fed’s repo operations with $500 billion caps. This provides enormous liquidity to the market and should stabilize any issues with liquidity.