Stocks - Wall Street Opens Lower as Fed Officials Damp Rate Hopes
By Geoffrey Smith
Investing.com -- Wall Street fell at the opening on Friday, as concerns about the spread of the coronavirus outside China, coupled with upbeat comments from Federal Reserve officials, combined to deter bulls.
By 9:45 AM ET, the Dow Jones Industrial Average was down 177 points, or 0.6%, at 28,996. The S&P 500 was down 0.7% and the Nasdaq Composite was down 1.0%.
St. Louis Fed President James Bullard told CNBC earlier that hopes for a rate cut due to the Covid-19 outbreak were overblown.
“There’s a high probability that the coronavirus will blow over as other viruses have, be a temporary shock and everything will come back,” Bullard said.
Atlanta Fed president Raphael Bostic – who isn’t a voting member on the Federal Open Market Committee this year - had also said cutting rates isn’t his central case scenario right now, citing the ongoing strength of the labor market in particular. Earlier this week, Minnesota Fed President Neel Kashkari, a noted dove who does have a FOMC vote this year, had said he expects rates to stay on hold for “three months, six months, even longer.”
Those comments are at odds with recent developments in the bond markets, which have pushed the Fed-sensitive two-year Treasury yield down as far as 1.38%, well below the current target range for fed funds of 1.50%-1.75%.
Irrespective of the Fed’s reaction function, concerns about the virus’ impact on the world economy have returned as the number of reported cases in South Korea more than doubled this week. Developments in Korea may give a more reliable indication of how easy – or hard – it will be to contain if it reaches the general population in the U.S. and Europe.
Among individual stocks, agricultural machinery maker Deere & Company (NYSE:DE) outperformed, rising 7.9% after posting quarterly earnings nearly one-third above expectations. Deere said confidence among U.S. farmers, its core customer base, had improved as a consequence of the U.S.-China trade truce, but was still subdued.
Sprint (NYSE:S) stock jumped 6.1% to a six-year high after the revision of its merger deal with T-Mobile gave Sprint’s free shareholders a pass. While major shareholder Softbank (OTC:SFTBF) will get a smaller share of the combined company (24% compared to 27% under the original deal), Sprint’s other shareholders will still to receive the original exchange ratio.
T-Mobile US Inc (NASDAQ:TMUS) stock fell 0.6%.
Elsewhere, Slack Technologies (NYSE:WORK) stock was up 2.5%, after a Business Insider report claimed that Uber (NYSE:UBER) wants to move 38,000 employees onto the system.
Risk aversion shot through other markets too, as U.S. crude oil futures fell 2.2% to $52.72 a barrel, while gold futures hit their highest in over seven years, undismayed by the Fed comments downplaying hopes of lower rates. Gold rose 1.5% to $1,644.75 an ounce.
The dollar, meanwhile, continued its surge against emerging market currencies, although it lost ground against both the Swiss franc and the Japanese yen and sterling.