Dow and US stocks plunge again: March 16, 2020

US stocks opened sharply lower on Monday as investors grew concerned that the emergency policy measures by global central banks over the weekend meant the economy is in much worse shape than previously believed. Instead of soothing the markets, another emergency interest rate cut from the Federal Reserve had the opposite effect.

The S&P 500 opened down 8.1%. The index hit a circuit breaker after falling more than 7%. Trading is now halted for 15 minutes.

The Dow opened 9.7%, or 2,250 points, lower.

The Nasdaq Composite fell 6.1%.

A the usual metal detectors outside of one wall, I wasn’t greeted my the usual NYPD officer who know me by name. This morning, I was greeted by two people dressed in white lab coats and blue masks, and they asked me if I was going to be on the floor of the NYSE.

They handed me a form and ushered me to the lobby of the building where it was full of those wearing white lab coats and blue masks and gloves.

Again, they asked if I would be on the floor today. And I said, "Yes -- that’s where I do my live reports."   

Suddenly I had a thermometer pressed against my forehead and I think the woman under her mask saw that I was startled. She said it’s going to be alright.

My temperature was normal and I was allowed to proceed to the CNN offices upstairs.

Welcome to the new normal at the NYSE.

These are the precautions the NYSE is taking:

Up until about last week, gold prices were holding up much better than the rest of the market in the wake of the panic about the global coronavrius outbreak.

Not anymore.

The price of the yellow metal fell 3% on Monday alone, following the Federal Reserve's emergency rate cut on Sunday night. Gold prices have now slipped for the past five days.

It was only a week ago that gold hit a seven-year high of more than $1,700. Now the metal is trading at around $1,470, down about 3% for the year.

Will gold keep falling? It's worth noting that in 2008, after the price dropped as much as 33% from its highs in the initial chaos of that financial crisis, gold bounced back quickly and finished up nearly 6% for the year.

Gold was viewed as a hedge against a global recession 12 years ago. Will that happen again this year?

The Federal Reserve shocked the markets Sunday night by cutting interest rates a full percentage point to essentially zero -- just three days before the Fed was set to have its regular meeting.

But the move was not unanimous. Cleveland Federal Reserve president Loretta Mester dissented with the central bank's decision. According to the Fed statement, Mester voted for the Fed to just cut rates by a half-point to 0.5% to 0.75%. Mester has typically been one of the more hawkish Fed members, preferring to lower rates more gradually.

The Fed also announced several other bold measures in coordination with other global central banks to try and stabilize the markets. And Mester was "fully supportive of all of the actions taken to promote the smooth functioning of markets and the flow of credit to households and businesses."

But stocks plunged around the world Monday despite the extraordinary move. Possible reasons? The Fed has now done all it can and has nothing left -- which might have been a reason for the central bank to cut rates more slowly in order to have more arrows in the quiver. Investors also seem to realize that there's only so much the central bank can do to alleviate the impact of what is, first and foremost, a health crisis.

Early indicators for how the US economy is faring under the growing coronavirus outbreak are not encouraging.

The Empire State Manufacturing Survey's general business condition index plummeted to -21.5, its lowest level since 2009, compared with the consensus expectation of 4.

The new order and shipping indexes also fell, and optimism for the six-month business outlook plummeted, "with firms less optimistic than they have been since 2009," according to the data release.

JPMorgan (JPM) cut its economic forecasts for the year following the data release, predicting 1.94% GDP growth, versus 2.03% before. The risk of a recession within one year climbed to 37.3% from 34.8%.

Sunday's central bank action was about more than the Federal Reserve's dramatic slashing of interest rates.

The US central bank also struck a deal with central banks around the world -- the European Central Bank, Bank of England, Bank of Japan, Bank of Canada and Swiss National Bank -- to shore up liquidity and keep financial markets functioning smoothly.

The banks agreed to lower their rates on currency swaps, which helps keep lower cost of US dollars to ease market stress. The dollar is the world's major funding currency and in times of uncertainty those funding costs can spike.

"The US dollar dominates the global payments system and given signs that the economic fall-out from the coronavirus is worsening, the Fed may have to resort to further emergency measures to fully convince global businesses that the supply of the greenback will remain ample," wrote Jane Foley, senior FX strategist at Rabobank.

So much for central banks to the rescue. Investors clearly are not soothed by the Federal Reserve slashing interest rates to zero on Sunday, or the global coordinated central bank action that came along with it.

Stock markets are flashing red across the world and US equity futures once again have hit their "limit down" overnight, meaning they cannot fall any further. This happened twice last week, and on both days stocks also tripped a circuit breaker that led the New York Stock Exchange to halt trading for 15 minutes.

The NYSE circuit breakers depend on drops in the S&P 500, with the first triggered at a 7% decline.

We could be in for another one of those today as traders are flying blind into the open.

Dow futures are down 1,041 points, or 4.5% at their limit down, while S&P 500 futures are off by 4.8%. Nasdaq Composite futures are down 4.5%.

ETFs tracking the three major indexes are painting a much gloomier picture: the S&P 500 tracker SPDR S&P 500 ETF Trust (SPY) is down 9.7%.

Many Americans might be tempted to believe the assurances of the President and his Treasury Secretary that the negative economic impact of the Coronavirus outbreak will be short, and that the US economy and stock prices will recover quickly. 

But if that were the case, the Federal Reserve would not have taken action of cutting rates near 0% to stabilize the financial system.

The US central bank took these extraordinary steps in part because investors in specific corners of the credit markets have been panicking. 

Although these aren’t markets that average Americans follow, they can still impact them in ways they can see and feel like money market funds, mortgage rates and small business lending.

But the volatility in these critical credit markets is unlikely to end any time soon.

While the Fed’s actions may have soothed the credit markets, it led to a pullback in the stock markets—futures sold off violently right after the Fed’s move.

But even if the Fed succeeds in stabilizing markets, the government will still need to do much more to help average Americans, including putting actual cash in the hand of consumers and other forms of financial assistance to stave off or minimize a recession.

Trump has made the economy—and the stock markets—a signature part of his re-election campaign, so we can expect to see him pressure Congress in the near term to pass a fiscal stimulus package. His re-election may depend on it.

MGM Resorts International (MGM) and Wynn Resorts (WYNN) will close their Las Vegas properties as of March 17 in light of the coronavirus pandemic.

Wynn Resorts indicated Sunday that it would close Wynn Las Vegas and Encore "as part of its continuing effort to reduce the spread" the coronavirus.

The company said it expects the closures to be in effect for two weeks, beginning at 6 p.m. Tuesday, at which point the company will assess the situation.

Similarly, MGM Resorts said in a news release Sunday that it will close casino operations on Monday, March 16, and then hotel operations. It said it will not accept reservations before May 1.

MGM Resorts operates a number of Las Vegas properties, including the Bellagio, the MGM Grand, and The Mirage — among others.

MGM's shares sank 14% in premarket trading, while Wynn's stock plunged 17%.

Read more here.