Selloff Continues in the Face of Fed Action…..

After rallying yesterday on anticipation that the Fed would step in to calm markets, U.S. equities sold off sharply today, despite the Fed exceeding expectations for the timing of its next rate cut. In a surprise move, the Fed lowered its target range for the fed funds rate by 50 basis points, which was widely expected to happen, but perhaps not until the regularly scheduled meeting in March. Treasury yields reacted with record low yields. The 10-year rate fell below 1% for the first time in history and the 30-year yield also set new records. Yields finished off the lows of the day, but not by much. The U.S. dollar fell under pressure from the lower yields and dropped versus nearly all of its major peers. Gold rallied strongly and crude oil prices were modestly higher. Target posted mixed quarterly results and offered EPS guidance that underwhelmed analysts. Microchip Technologies lowered it guidance, citing the impact of the coronavirus. Thermo Fisher Scientific agreed to acquire QIAGEN NV for roughly $10.0 billion, excluding debt. Global equities finished with widespread gains, except for in Japan, where a strong yen weighed on stocks.

The Dow Jones Industrial Average shed 786 points (2.9%) to 25,917, the S&P 500 dropped 87 points (2.8%) to 3,003 and the NASDAQ lost 268 points (3.0%) to 8,684. In heavy volume, 1.7 billion shares were traded on the NYSE and 4.3 billion shares changed hands on the NASDAQ. WTI oil rose $0.43 to $47.18 per barrel and wholesale gasoline shed $0.01 to $1.53 per gallon. Elsewhere, the Bloomberg gold spot price added $49.60 to $1,644.40 per ounce. The Dollar Index—a comparison of the U.S. dollar to six major world currencies—fell 0.2% to 97.14.

Treasuries rallied strongly on the surprise move from the Fed, with the yield on the 2-year note falling 20 basis points (bps) to 0.70%, the yield on the 10-year note dropping 16 bps to 1.00%, and the 30-year bond rate decreasing 10 bps to 1.62%.

Bond yields added to record lows, seeing heavy pressure on the short end after the Federal Open Market Committee (FOMC) announced a 50 bp cut to its target range for the fed funds rate to 1.00-1.25%, citing that the coronavirus poses evolving risks to economic activity. The FOMC added that it is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy. The FOMC’s emergency action came ahead of its monetary policy meeting later this month.

Tomorrow will be a busy day from the economic calendar The ADP Employment Change report is expected to show 170,000 people added to payrolls in February, which is down considerably from January’s 291,000, but still points to a booming labor market in the U.S. Markit Services and Composite PMI will post their final numbers for February, with no revisions expected. ISM Non-Manufacturing is expected to show non-manufacturing activity in the U.S. continued to expand in February, but at a slightly slower pace than in January,

©2020 Charles Schwab & Co., Inc., Member SIPC. All rights reserved.

Schwab Center for Financial Research (“SCFR”) is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.