Fed's emergency rate cut

The stock market has no idea how to react to the Fed's emergency rate cut

By Anneken Tappe

Stocks fluctuated wildly on Tuesday after the Federal Reserve slashed interest rates by a half point to help protect the US economy against the fallout from coronavirus.

The surprise move by the Fed followed a wild rally at the start of the week in which the Dow recorded its highest point-gain in history. Markets were off to a weaker start Tuesday before the central bank stepped in.

The Dow (INDU) was up as much as 381 points and down as many as 356 points in a roller coaster first hour of trading. Stocks initially jumped higher after the rate cut, but then moved lower.

The Dow was most recently up 130 points, or 0.5%, about an hour into trade. The broader S&P 500 (SPX) was up 0.7%. The index logged its best day in more than two years Monday.

The Nasdaq Composite (COMP) jumped 0.6%.

Investors weighed the jolt the US economy could get from the Fed's stimulus with the message the stunning rate cut sends: The US economy could be in trouble because of coronavirus.

The unscheduled rate cut -- the first since the financial crisis -- came as investors worried about the spread of the novel coronavirus and the growing risk to the global economy. Market expectations for an interest rate cut at the Fed's March 18 meeting had been at 100% at the market open Monday, even though Fed officials spoke out last week against cutting interest rates right away.

Finance officials from the world's seven largest advanced economies, known as the G7, failed to calm investors' nerves about the outbreak earlier Tuesday, as the group said it would not coordinate interest rate cuts and made no commitment to fiscal stimulus to stave off the economic fallout.

Wall Street rallied Monday on hopes that central banks would inject stimulus. The rebound rally that ensued brought the Dow its biggest point-gain in history as stocks bounced back from their worst week since the financial crisis.