Home / Markets News & Opinions / The Dow Is Plunging Because the Stock Market Didn’t Take the Fed’s Bait

The Dow Is Plunging Because the Stock Market Didn’t Take the Fed’s Bait

Last Updated September 23, 2020 1:37 PM
Francois Aure
Last Updated September 23, 2020 1:37 PM
  • The U.S. stock market fell again on Friday after the WHO raised its threat level on the coronavirus (COVID-19) to “very high” and flirted with “pandemic” terminology.
  • Briefly boosting a shaky Dow Jones, Fed Chair Jerome Powell spoke this afternoon.
  • A cataclysmic drop in Boeing shares did much of the damage to the Dow 30.

The Dow Jones tumbled toward another ugly loss on Friday, even after a surprise message from Jerome Powell raised hopes that the Federal Reserve will intervene to support a fragile stock market.

Powell’s comments sparked a brief relief rally, but the Fed chair’s statement failed to calm a market rocked by coronavirus-related commentary from the World Health Organization (WHO).

Dow Jones Teeters Beneath 25,000

dow jones industrial average chart, stock market
The Dow Jones suffered a wave of volatility on Friday. | Source: Yahoo Finance 

Among the major U.S. stock market indices, the Dow Jones was easily the worst performer.

  • The Dow slid 938.31 points or 3.64% to 24,828.33.
  • The S&P 500 fell 3.14% to 2,885.2.
  • The Nasdaq dipped 2.28% to 8,371.58.

In the commodity sector, fears over global demand conjured a horrific day for crude oil, which fell 4.5% to just under $45.

The price of gold suffered an awful 3.5% drop. Silver’s 6.3% pullback was even uglier.

Powell’s Remarks Fail to Calm Investors

Robust consumer sentiment data did little for markets, as the VIX ballooned to its highest level since 2011 .

Fed Chair Jerome Powell clearly heard Wall Street crying out for intervention, and he issued a surprise statement :

The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy.

Yet questions remain about how effective monetary policy can be in combating a health crisis. 

WHO Spooks Stock Market With ‘Pandemic’ Commentary

It was no surprise to see the Dow Jones struggling after the WHO decided to raise their threat level around the coronavirus outbreak .

While this did cause some market volatility, the most bearish development came from a stunning admission about why the WHO has failed to declare COVID-19 a “pandemic.”

Speaking on Friday, WHO Health Emergencies Programme Executive Director Dr. Michael Ryan suggested that the outbreak had already reached “pandemic” proportions. So why not call it a pandemic? Because it’s “unhelpful to do that.”

Ryan said:

If this was influenza, we would probably have called this a pandemic by now, but what we’ve seen with this virus is that [containment measures work] and to declare a pandemic it’s unhelpful to do that when you’re still trying to contain a disease.

The obvious implication of this is that tactical, not technical considerations, are the only reasons the WHO hasn’t designated the coronavirus a pandemic.

dow jones
Source: Twitter 

Further weighing on stock markets is the realization that a viable vaccine could be as far as 24 months away .

Fridays have been rough on markets since the outbreak began, as investors have been keen to avoid carrying risk over the weekend. This appeared to be the case today, but with an added twist: China reports its crucial PMI data just after the close.

Dow Stocks: Boeing Crushed, Apple Bleeds

It was a bloodbath in the Dow 30  as huge members of the index dove together.

Boeing (NYSE: BA) is being ravaged by the outlook for struggling airlines. Its stock fell a whopping 5.5% to $271 a share.

Apple (NASDAQ: AAPL) was also in trouble, down another 1.8%. The $1 trillion stock is clinging to year-to-date gains of slightly more than 10%.

J.P. Morgan Chase suffered (-6.4%) from the collapse in Treasury yields, while McDonald’s plummeted 4.6% on a negative outlook for consumer demand if the virus spreads.