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Stocks prepare to tumble at opening bell

4 years 2 months 4 weeks ago Wednesday, March 18 2020 Mar 18, 2020 March 18, 2020 7:22 AM March 18, 2020 in News
Source: CNN

The U.S. Federal Reserve has taken extraordinary measures to fight the swift economic shock caused by the virus pandemic, its cut interest rates to nearly zero and ramped up asset purchases in addition to easing capital rules to provide banks with more flexibility, allowing them to extend credit to households and businesses.

But on Wednesday morning, futures on the Dow Jones Industrial Average pointed to an opening drop of more than 820 points or 3.94%. Futures on the S&P 500 similarly indicated a steep fall of approximately 3.7%.

Trading was temporarily halted for futures on the Dow after it tumbled past its "limit down" threshold.

It's already been a roller-coaster week for equity markets. On Monday, the Dow suffered its worst day since the "Black Monday" crash of 1987, dropping nearly 3,000 points or 12.94%. 

But on Tuesday the central bank invoked emergency powers to launch a new program that will seek to unfreeze a $1 trillion market and keep America's economy moving. This resulted in the index rebounding more than 1,000 points, or over 5%. 

According to CNN, the Fed explained that it will purchase commercial paper from highly rated borrowers. During normal times, businesses use the commercial paper market to easily get short-term loans to pay workers and finance inventories. 

That said, there's been a significant breakdown in recent days, raising fears that coronavirus-ravaged companies would lose access to credit just as they need it most. That would have a cascading effect, forcing cash-strapped businesses to lay off workers and scrap spending plans.

In a note to clients, Goldman Sachs' chief economist Jan Hatzius called the move a return to the "crisis-era playbook" — and predicted that more emergency measures to keep credit flowing would eventually be provided.

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