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U.S. Stocks Plunge After Surprise Rate Cut from the Fed

U.S. stocks fail to sustain rally after Fed announces emergency rate cut.

The Dow and broader U.S. stock market plunged anew on Tuesday after the Federal Reserve issued its first emergency rate cut in more than a decade.

All of Wall Street’s major indices finished in negative territory. The Dow Jones Industrial Average (DIA) plunged 789.37 points or 3%, to 25,913.95. The large-cap S&P 500 Index (SPY) declined 2.8% to close at 3,003.09. Meanwhile, the technology-focused Nasdaq Composite Index (QQQ) declined 3% to 8,684.02.

All 11 primary sectors posted declines, with information technology leading the pack. Financials, communication services and energy stocks also declined sharply.

A measure of implied volatility known as the CBOE VIX (VXX) spiked on Tuesday. The so-called “fear index” touched an intraday high of 41.06 on a scale of 1-100 where 20 represents the historic average. It would eventually settle up 11.2% to 37.17.

Federal Reserve Chairman Jerome Powell announced Tuesday that the central bank would cut the benchmark interest rate by 50 basis points to a new target range of 1% to 1.25%. The 50 basis-point reduction came amid a worsening coronavirus outbreak that is impacting everything from trade to travel.

Stocks rallied initially on the news, but gains quickly evaporated after the Fed chairman failed to instill confidence in the investing public.

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Powell said that, while the fundamentals of the U.S. economy remain strong, “the coronavirus poses evolving risks to economic activity.”

The Final Word: The Federal Reserve will follow up its rate cut with a planned policy meeting in roughly two weeks’ time. The March Federal Open Market Committee (FOMC) meeting will see the release of quarterly projections on economic growth, inflation and unemployment.