Market Stabilizes After Interest Rate Cut Amid Coronavirus Fears

The three major US stock indexes have somewhat stabilized after the US Federal Reserve made an unexpected interest rate cut on Tuesday (March 3) in response to concerns about the ongoing global coronavirus outbreak.

In the past month, both the S&P 500 Index (INDEXSP:.INX) and the NASDAQ Composite Index (INDEXNASDAQ:.IXIC) had sunk over 8 percent. Similarly, the Dow Jones Industrial Average (INDEXDJX:.DJI) dropped over 10 percent.

On Wednesday (March 4), however, the S&P 500 Index and the NASDAQ Composite Index were up nearly 2 percent, while the Dow Jones rose 2.2 percent by the middle of the trading day.

In the first time since the financial crisis of 2008, the Federal Reserve made an emergency cut to interest rates of half a percentage point, leaving the new benchmark rate between 1 percent and 1.25 percent.

In a statement sent out on Tuesday, the reserve told the market that while the fundamentals of the US economy are strong, the coronavirus “poses evolving risks to economic activity.”

The statement added that the reserve will closely monitor the developments of the outbreak and its implications for the economic future of the US, using its tools to support the economy if needed.

“The spread of the coronavirus has brought new challenges and risks,” Federal Reserve Chairman Jerome Powell said during a press conference.

The global spread of the COVID-19 virus, which causes the flu-like illness, began in China late last year and brought along with it fears of an economic recession as countries canceled flights to locations currently facing outbreaks.

“The virus, and the measures that are being taken to contain it, will surely weigh on economic activity both here and abroad for some time,” Powell said.

The tourism and travel industries are beginning to feel the pressure as well, he added, as are industries relying on global supply chains.

The biotech and pharmaceutical industries have responded by rushing to try and create a vaccine for the illness.

On Wednesday, Vir Biotechnology (NASDAQ:VIR) and Alnylam Pharmaceuticals (NASDAQ:ALNY) told investors they’ve begun the commercialization process for therapeutics targeting the coronavirus.

Both Vir and Alnylam have enjoyed boosts today, with Vir rising 10.2 percent by mid trading day. Alnylam saw a more modest increase of 3.5 percent by 12:20 p.m. EST.

According to the most recent situation report from the World Health Organization (WHO), over 90,000 cases have been diagnosed globally and 72 countries have reported cases.

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Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.