On Monday, US stocks suffered their third largest down day on record, despite significant intervention from the Federal Reserve and the White House.
The Dow Jones closed down 12.93 per cent at 20188.52 points, while the Nasdaq fell by 12.32 per cent to 6904.59.
The S&P 500 fared little better, closing the day at 2386.13 points after an 11.98 per cent drop. This loss outdid last week’s ‘Black Monday’ S&P drop of 9.51 per cent.
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Only the start of the Great Depression on 28 October 1929 and the more famous Black Monday of 19 October 1987 surpass yesterday’s drop.
Travel and hospitality firms led the way downward, with MGM Resorts (MGM) the S&P’s biggest loser of the day, falling 33.6 per cent.
The ongoing oil price war between Saudi Arabia and Russia that was triggered by the Covid-19 outbreak continued to hemorrhage US energy companies. The oil and gas exploration firm Apache (APA) closed Monday just behind MGM down 32.3 per cent.
President Donald Trump’s assertion that: “The United States will be powerfully supporting those industries, like airlines and others, that are particularly affected by the Chinese Virus,” buoyed beleaguered US carriers. American Airlines ended Monday and the S&P’s biggest gainer, up 11.2 per cent.
The scale of Monday’s drop has further called the efficacy of market intervention into question. On Friday, the Federal Reserve injected $1.5tn into the American financial system and the White House announced provisions to safeguard the economy. The US president signed a print-out of the subsequent bump for Lou Dobbs of Fox News, taking partial credit.
However, even with $700bn of quantitative easing, coordination with five other central banks to shore up the strength of the dollar and cutting interest rates to between 0 and -0.25 per cent for the first time ever, the US market tanked.
With Wall Street’s go-to fear gauge, the CBOE Volatility Index (VIX), rising beyond 2008 levels to a record high of 83.45 per cent, the recent intervention appears to have failed in its objective to stabilise the US economy and improve investor confidence.
A further example of uncertainty and volatility persisting can be found in US futures hitting their upward limit before Tuesday trading.