United States stock markets on Tuesday regained some ground lost to Monday’s historic selloff, after the US Federal Reserve unleashed more emergency moves to help credit markets and after the White House said it is seeking more than $1 trillion in stimulus measures to help shore up the economy against coronavirus.
The Dow Jones Industrial Average closed up 1,049 points to 21,237.31, clawing back just over a third of Monday’s historic 3,000-point plunge.
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Volatility gripped the 30-share index in early trading, sending it into negative territory to briefly drop below 20,000 for the first time since 2017.
But stocks found their footing after the Fed announced more emergency measures to help ensure credit keeps flowing smoothly through the economy and after the administration of US President Donald Trump rolled out more plans to offset the financial blow of coronavirus disruptions.
The broader S&P 500 Index, which serves as a proxy for the health of US retirement and college savings accounts, closed up 6 percent. On Monday, the index posted its worst one-day percentage drop ever.
The Nasdaq Composite Index also sprang back from its worst one-day percentage drop to close up 6.46 percent.
Shares of Regeneron Pharmaceuticals rallied after the company said it is gearing up to start clinical trials of a potential coronavirus treatment by early summer. Shares of the biotech firm closed up 11.5 percent.
After the opening bell, investors took heart as the Fed, which is the US central bank, once again rode to the rescue of credit markets that are coming under increasing strain as businesses and investors scramble to get their hands on enough cash to ride out the coronavirus storm.
Spirits were lifted further after US Treasury Secretary Steven Mnuchin told reporters that the Trump administration is considering sending Americans cheques within the next two weeks to help them absorb personal financial shocks as the coronavirus roils businesses and livelihoods.
“We’re looking at sending checks to Americans immediately,” Mnuchin said at a White House briefing. “Americans need cash now.”
Mnuchin also said that the government is extending the filing deadline for 2019 taxes by 90 days and allowing individuals to defer up to $1m in income taxes owed, while corporations can defer up to $10m in taxes due.
More analysts are predicting that the coronavirus pandemic will trigger a contraction in the US and global economies for at least one quarter, with some forecasting a recession – defined as two consecutive quarters or six straight months of negative economic growth.
On Tuesday, the commerce department reported that US retail sales slumped in February – a disturbing sign because consumer spending accounts for roughly two-thirds of US economic growth.
Signs of stress in US credit markets caused the Fed to implement more crisis measures on Tuesday to unclog vital plumbing in the financial system.
The Fed gave a boost to the commercial paper market – a short-term debt market businesses use to fund their day-to-day operations.
“By ensuring the smooth functioning of this market, particularly in times of strain, the Federal Reserve is providing credit that will support families, businesses, and jobs across the economy,” the Fed said in a statement on Tuesday.
The Fed has implemented a number of emergency measures to stop credit markets from seizing up, injecting hundreds of billions of dollars into the “repo” that market banks use to fund their day-to-day operations, and easing conditions to make it easier for banks to lend.
The Fed has restarted its bond-buying programme to encourage the smooth functioning of the US Department of the Treasury and mortgage-backed securities markets.
It is through these markets that individuals and small businesses ultimately feel the impact of monetary policies. The Fed also cut interest rates on Sunday to near zero.
On a more global scale, the Fed, in concert with five other central banks, instituted moves to ensure that there is a sufficient amount of US dollars available overseas to ensure that the markets for borrowing and lending dollars do not become overly strained.