Categories: Finance

Dow set to drop 200 points after G-7 fails to deliver policy action to combat coronavirus

U.S. stock index futures indicated a lower open on Tuesday after a statement by the G-7 failed to assuage investor concerns over how the biggest global economies will curb the economic impact of the coronavirus. 

Futures also pointed to declines after a report said a New York City high school was closed due to a suspected case of coronavirus. 

As of 8:44 a.m. ET, Dow Jones industrial Average futures indicated a drop of about 200 points at the open. Futures on the S&P 500 and Nasdaq 100 also pointed to a decline.

The G-7 said in a statement they will use policy tools to curb an economic slowdown. However, the statement contained no specific actions. 

Investors have been fretting over a potential economic slowdown as the coronavirus spreads around the world. More than 89,000 coronavirus cases have been confirmed globally along with more than 3,000 deaths related to the virus. 

The virus’ fast spread led investors to price in easier monetary policy from the Federal Reserve. Traders are currently pricing in a 50 basis-point rate cut from the Fed, according to the CME Group’s FedWatch tool. Another 25 basis-point cut is also priced in for April. 

The Reserve Bank of Australia moved overnight to cut in its cash rate by 25 basis points to 0.5%, a record low.

In a statement announcing the decision, the Australian central bank’s governor acknowledged that the coronavirus outbreak overseas is having a “significant effect” on the country’s economy and said the move to ease monetary policy was done to “provide additional support to employment and economic activity.”

The premarket moves follow a roaring comeback rally in the previous session that saw the Dow post its biggest percentage gain since March 2009. The index also recorded its largest-ever point surge on Monday.

Monday saw U.S. stocks snap a losing streak that had gone on for over a week.  Some investors are skeptical that the rally has legs without a significant central bank response. Even if that comes to fruition, investors have their doubts the market has seen the end of its tumultuous trading of the last six days.

Jeff Mills, the chief investment officer at Bryn Mawr Trust, said on “Power Lunch” that he was not advising clients to buy back into the market and that Monday’s rally was just a “technical snapback.”

“I think the spectrum of outcomes is so wide here that one trading day is not going to resolve all of our issues, so we’re telling our clients just to sit tight for now,” Mills said.  

The U.S. stock market saw a historic bounce back on Monday, with the Dow gaining nearly 1,300 points. The Dow finished up 5.1% on the day, while the S&P 500 gained 4.6%. 

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