Wall Street loves lower interest rates more than almost anything — they stimulate everything from corporate mergers funded by bonds to consumer makeovers charged to a credit card.
But a surprise 0.5 percent cut on Tuesday to the Federal Reserve’s benchmark interest rate — the first outside of the normal cycle since the financial crisis — wasn’t enough for investors, who only seemed to grow more worried over the coronavirus fallout.
The Dow Jones Industrial Average swung wildly Tuesday, ending down 785.91, or 2.9 percent, to 25,917.41 even after Fed chairman Jerome Powell tried to reassure businesses and investors that the central bank had their back.
The plunge in the Dow contracted to markets in Europe, which closed ahead as investors gauged an earlier statement of the U.S. and the other G7 countries that reiterated their commitment to support economic growth.
The CAC 40 in Paris rose 1.1 percent to 5,393.17 as the FTSE 100 in London increased 1 percent to 6,718.20 — driving most luxury group’s shares higher. The Nikkei 225 in Tokyo, where an outbreak has hit businesses hard, fell 1.2 percent 21,082.73.
Among those getting hit hardest in the U.S. market were Chico’s FAS Inc., down 8.4 percent to $3.48; Revolve Group, 8 percent to $14.50; Columbia Sportswear Co., 4.7 percent to $78.13; Stitch Fix Inc., 4.6 percent to $22.62; RealReal Inc., 4.4 percent to $13.59; G-III Apparel Group., 4.3 percent to $21.13; VF Corp., 4.2 percent to $71.51, and Capri Holdings, 4.1 percent to $24.40.
At the same time, the wheels of commerce continued to slow, as travel restrictions hit more major events. Natural Products Expo West 2020, scheduled to be held this month in Anaheim, Calif., was postponed. And South by Southwest, a major stop on the tech and cultural calendar planned for March 13 to 22 in Austin, Tex., was hit by a number of cancellations, including by Facebook, Twitter, Mashable and more. Facebook has also nixed at least the in-person component of its F8 developer conference and the entire Twitter workforce was told to work from home.
One saving grace is that the U.S. economy has been remarkably strong and came into the coronavirus troubles with some momentum, which could help blunt the impact.
“The fundamentals of the U.S. economy remain strong,” said Powell, who was nonetheless upfront about the challenges of the outbreak, which is spreading in the U.S. and hit suburban New York in Westchester County after an earlier case was found in Manhattan itself. “The virus and the measures that are being taken to contain it will surely weigh on economic activity, both here and abroad, for some time. We are beginning to see the effects on the tourism and travel industries, and we are hearing concerns from industries that rely on global supply chains.”
While the rate cut was dramatic, and a step President Donald Trump has been publicly browbeating Powell into taking, it can only do so much. And by stepping in to help prop up the economy, Powell had to acknowledge that it needed the extra support.
“Monetary policy can be an effective tool to support overall economic activity,” Powell said. “We do recognize that a rate cut will not reduce the rate of infection, it won’t fix a broken supply chain. We get that. We don’t think we have all the answers. But we do believe that our action will provide a meaningful boost to the economy.”
Just how much of a boost the economy will need remains to be seen. Goldman Sachs earlier cut its outlook on U.S. corporate profit growth to zero for this year, while the Organization for Economic Cooperation and Development on Monday warned the virus could cut global growth in half to 1.5 percent if the outbreak lasts long.
While most companies are left to prepare for — or at least plan — how they would react to the worst, some isolated parts of the economy have been helped.
“We’ve seen aggressive shopping across the country in our stores,” said Brian Cornell, chairman and chief executive officer of Target Corp.
But it’s household essentials, disinfectants, food and beverages that people are buying aggressively as they prepare for a possible stint of working from home — not fashion.
Retailers in the U.S. have not reported any major sales impact from the coronavirus yet (although luxury stores in China have certainly been hit hard, with huge parts of the country essentially shut down for weeks).
Instead retailers are scrambling to find supply chain workarounds where they rely on China — for finished goods or raw materials — and implementing policies to protect their workforces and keep business moving, creating an ad hoc telecommuting workforce.
They’re also dealing with the see-saw market that has made life more difficult for anyone who has to contend with it.
J. Crew Group Inc., for instance, was looking to spin off its quickly growing Madewell unit in an initial public offering, but is now taking more time to consider its options. Cole Haan was also looking at an IPO.
Right now, investors — and every one else — have their attention elsewhere.