Dow surges 5% with help on way
Central banks set to take action to spare economy from effects of the virus.
The Dow Jones Industrial Average soared nearly 1,300 points, or 5%, Monday as stocks roared back from a seven-day rout on hopes that central banks will take action to shield the global economy from the effects of the coronavirus outbreak.
The huge gains clawed back some of the ground lost last week in a massive sell-off that gave stocks their worst stretch since the financial crisis of 2008.
Technology companies led the broad gains, which gave the Dow its biggest-ever point gain and biggest percentage increase since March 2009. The S&P 500 index jumped 4.6%, its best day since December 2018.
European benchmarks were mostly higher, and Asian markets rose broadly.
Bond prices fell, pushing yields higher after having touched another record low earlier in the day. The yield on the 10-year Treasury note rose to 1.15% from 1.12% late Friday.
The virus outbreak that began in central China has been shutting down industrial centers, emptying shops and severely crimping travel all over the world. More companies are warning investors that their finances will take a hit because of disruptions to supply chains and sales.
Amid the worsening outlook, investors are increasingly anticipating that the Federal Reserve and other major central banks around the world will lower interest rates or take other steps to shield the global economy from the effects of the outbreak.
“Investors have convinced themselves that global central banks will likely be even more accommodative in order to short-circuit any psychological damage, “said Sam Stovall, chief investment strategist at CFRA.
Bill Nelson, chief economist at the Bank Policy Institute and a former Fed economist, said the Fed and other major central banks, possibly including China’s, could announce coordinated rate cuts by Wednesday morning. The cut would at least be a half-point and perhaps even three-quarters, he said.
“The only way to get a positive market reaction is to deliver more than expected,” he said.
The International Monetary Fund and World Bank announced simultaneously Monday that they are ready to help countries affected by the coronavirus through their emergency lending programs and other tools.
“We will use our available instruments to the fullest extent possible,” the IMF managing director, Kristalina Georgieva, and
World Bank President David Malpass said in a joint statement. “International cooperation is essential.”
The statement echoed similar promises to act if necessary from the Federal Reserve on Friday and the Bank of Japan over the weekend. Traders have priced in a 100% probability that the Fed will cut rates by a half-percentage point this month.
One encouraging sign to traders is that the finance ministers and central bank leaders of the Group of Seven major industrial countries will hold a conference call today to discuss an economic response to the viral outbreak.
U.S. Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell will lead the call. The group includes Japan, Germany, Britain, and France, among others.
There were signs that the economic impact is continuing to mount. Among them, a measure of China’s manufacturing output plunged last month to its lowest level on record.