US stocks roared back from last week’s coronavirus-fueled devastation, with the Dow surging nearly 1,300 points in its biggest single-day point gain ever on Monday.
The Dow Jones industrial average rose 1,293.96 points, or 5.1 percent, to close at 26,703.32, marking a comeback from Wall Street’s worst week since 2008 in which the blue-chip index shed more than 3,500 points.
The S&P 500 and the Nasdaq climbed 4.6 percent and 4.5 percent, respectively, as investors bet that central bankers will step in to shield the world economy from the epidemic.
“The selloff was so fierce last week that you do have some buy-the-dip investors emerging,” said Brent Schutte, chief investment strategist, Northwestern Mutual Wealth Management Company.
Stocks surged after the Bank of Japan and the US Federal Reserve pledged to support the economy in the face of the virus. Later on Monday, an official said the European Central Bank could take interest rates further into negative territory to combat the economic fallout.
Traders are now seeing a 100-percent chance of a 50-basis-point rate cut at the Fed’s March meeting, according to CME Group’s FedWatch tool.
Investors meanwhile shrugged off a warning from the Organization for Economic Cooperation and Development, which predicted the global economy is poised to slow sharply. In the Paris-based OECD’s “best case” scenario, the world economy will grow 2.4 percent this year, down from its 2.9-percent forecast from before the start of the epidemic.
Wall Street’s drop earlier in the day followed data that showed Chinese factory activity contracted at its worst pace ever in February.
“The Fed can cut rates all it wants, that is not going to put a person in a factory producing a product if that person is quarantined,” said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas.
“I don’t think (monetary policy) solves the problem … This particular one is both supply and demand, it will help but it won’t fix the problem.”
Meanwhile, it’s still not clear that central banks will step in as uniformly and quickly as many expect, according to Mark Rosenberg, the founder and CEO of market research platform Geoquant.
“This does look like a wishful thinking rally,” Rosenberg said. “It would be prudent to wait and see for most investors.”
Central banks in recent days said they would take steps to address the economic fallout of the coronavirus outbreak, which has disrupted global supply chains and crimped tourism around the world.
The outbreak “could cause analysts to pencil in very low economic growth for a few quarters or even a decline in output,” David Kelly, chief global strategist at JPMorgan Funds, wrote in a Sunday note. “For the rest of the world, it should delay the rebound that was expected following a relaxation of trade tensions entering the New Year.”
President Trump’s advisors reportedly pressed the Fed to hold an emergency meeting to slash rates, according to reports on Monday, saying the bank and chair Jerome Powell were “slow to act.”
“Other Central Banks are much more aggressive,” Trump said on Twitter. “The U.S. should have, for all of the right reasons, the lowest Rate. We don’t, putting us at a competitive disadvantage.”
With Post wires