| Tuesday's Headlines 1. Investors ignore Fed rate cuts as markets slide 2. 10-year U.S. Treasury yield falls below 1% for first time 3. Why monetary policy may be ineffective 4. Consumers are getting scared Markets Closed
 Markets Today Yesterday's market gains feel like months ago following today's sell-off in the face of an unexpected 0.5% interest rate cut by the Federal Reserve. Investors were expecting a cut when the Fed meets March 18–19, but the FOMC made the move today following a global conference call with G-7 finance ministers and central bank governors. U.S. markets rose and then fell hard following the cut as investors came to the realization that monetary stimulus may be an insufficient tool to combat the economic impact of the spread of the coronavirus. It was another case of,"Buy the rumor, sell the news," and investors took that to heart today, driving the DJIA, S&P 500, and the Nasdaq down nearly 3%.
As the death count rises and new cases pop up in New York City schools and elsewhere around the country, investors are growing increasingly fearful that there are no tools in the monetary or fiscal toolkits to deal with what could soon turn into a global pandemic. Just like every day for the past six, global markets swung widely from gains to losses as some investors booked profits on Monday's historic spike while others continued to shed stocks and hide in cash and bonds. Gold, which was staying true to its legacy as a safety asset, actually climbed 2.5% today as U.S. Treasury yields fell to historic lows yet again (more below). Gold prices had been declining with the broader market last week in an unusual trend, but that may be because large investors were liquidating their positions to free up cash.
While the Fed's rate cut was meant to mollify investors, it may have made them more anxious since it signifies the extreme concern that central banks have over the economic impacts of COVID-19. The President wasn't too thrilled, either.  Headlines:
 U.S. 10-Year Treasury Yield Dips Below 1% File this in the "I thought I'd never live to see the day" file... but we saw it today. The yield on the U.S. 10-year Treasury fell below 1% for the first time in its history as investors rushed to buy its relative safety just as the Federal Reserve cut interest rates by 0.5% in an emergency monetary policy move.
Long-term Treasury yields have also hit record lows this week and the pile of negative-yielding debt around the world continues to grow as concerns about the economic fallout from the coronavirus mount. In another sign of deep concern about the economic growth outlook, the yield on 30-year inflation-linked Treasuries fell below zero for the first time.
The 10-year U.S. Treasury, considered by many to be the benchmark for global treasury bonds, underpins everything from mortgage rates to credit cards and student loans. Rates for those products have been falling, and they will likely continue to do so as more investors pile into U.S. treasuries seeking safety from falling stock prices. That's good news for consumers with debt, but for investors, these are the key takeaways:
1. There's still huge concern about the economy
If stocks continue to sell-off, expect the 10-year yield to go even lower, bringing us deeper into uncharted waters.  chart courtesy Morning Consult
U.S. Consumers Feeling the Fear Consumer behavior here in the U.S. is a major variable in investor anxiety. As we know, consumer spending drives two-thirds of GDP. It has been strong for the past year and a half thanks to low interest rates and low gas prices, but the fear of the coronavirus is having an impact already, and it could grow larger. We'll get a better sense of that when we get the monthly consumer confidence and spending reports in the coming days, but businesses, especially travel and entertainment businesses, have already been feeling the pain.
That pain could get worse if the survey from Morning Consult—referenced in the chart above—bears out. Nearly every major category of consumer discretionary spending could take a hit if people stop going to restaurants, concerts, the gym, or the shopping mall. The degree to which consumers may simply just stop spending on these and other activities is not yet known, of course. That depends on the severity and duration of the coronavirus, which is the great unknown that is bedeviling investors today.
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(chart courtesy YCHARTS)  Costco's shares rose by nearly 10% following a sharp increase in sales, seemingly spurred by consumers stocking up on bulk essentials in fear of the coronavirus outbreak causing supply chain disruptions. Apple's stock price increased over 9% today on a rumor that the tech giant is working on six new mini-LED products, despite facing factory shutdowns in China.  Trade Technologies' shares fell by a hefty 22% today; the refrigeration and air conditioning manufacturer also recently completed a Reverse Morris Trust transaction with its former parent company, Ingersoll Rand Inc. Despite rising yesterday, the stock price of Norwegian Cruise Line Holdings decreased by over 4% today, likely due to to the coronavirus-related traveling concerns that are impacting other cruise lines. Word of the Day Treasury yield is the return on investment, expressed as a percentage, on the U.S. government's debt obligations. Looked at another way, the Treasury yield is the effective interest rate that the U.S. government pays to borrow money for different lengths of time. Treasury yields don't just influence how much the government pays to borrow and how much investors earn by buying government bonds. They also influence the interest rates that individuals and businesses pay to borrow money to buy real estate, vehicles, and equipment. Treasury yields also tell us how investors feel about the economy. The higher the yields on 10-, 20- and 30-year Treasuries, the better the economic outlook.  Image: MOAF.org
Today in History March 3, 1901 J.P. Morgan announces that he is organizing the largest corporation the world has yet seen by merging his Federal Steel conglomerate with Andrew Carnegie's Carnegie Co. The company is initially capitalized at $1.4 billion—the first billion-dollar company ever—four times the budget of the U.S. government and 7% of the gross national product. In a popular joke of the day, a schoolboy is asked about the history of the world. "God created the world in 4004 B.C.," he answers, "and it was reorganized by J.P. Morgan in 1901."
Source: Jean Strouse, Morgan: American Financier (Random House, New York, 1999), p. 404.
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Tuesday, March 3, 2020
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