(Reuters) – U.S. stock markets fell sharply on Tuesday on worries that even a half percentage-point cut in interest rates might not be enough to stave off the economic impact of the coronavirus outbreak and halt the worst sell-off in more than a decade.
It was the Federal Reserve’s first emergency rate cut since the 2008 financial crisis, underscoring how grave the central bank views the fast-evolving situation.
Stocks initially jumped more than 1% on the news, but gains soon petered out as analysts and traders worried whether pumping more money into financial markets would address the central problem – a cut in business activity as workers and consumers stay home.
“The market reaction now is negative because the Fed sent the wrong message to the market,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
“All of a sudden the Fed is really worried about the economy and this is the reason why we are having this volatility.”
The U.S. central bank cut rates three times in 2019 and has since held fire amid signs of improving growth after a Phase-1 trade deal between the United States and China.
Bank stocks, which tend to outperform when interest rates are higher, dropped 3.4%, while the broader financials sector fell 2.6%. Five of the 11 major S&P sectors were trading higher.
“The rate cut underscores the magnitude of the problem that the global economy is facing,” said Peter Kenny, founder of Kenny’s Commentary LLC and Strategic Board Solutions LLC in New York.
“Normally, markets would welcome a rate cut, and they were hoping for it. Now that we’ve got it, the question is what’s next.”
At 11:47 a.m. ET, the Dow Jones Industrial Average was down 403.67 points, or 1.51%, at 26,299.65, the S&P 500 was down 39.53 points, or 1.28%, at 3,050.70. The Nasdaq Composite was down 107.02 points, or 1.20%, at 8,845.14.
Healthcare equipment maker Thermo Fisher Scientific, rose 3% after it launched a $11.6 billion bid for German genetic testing company Qiagen.
Electric-car maker Tesla TSLA.O rose 3% after brokerage JMP Securities upgraded the stock to “market perform”.