As stocks tumble on worries about a fast-spreading virus, investors have been clamoring for central banks to help stop the plunge. But lowering interest rates won't make sick people healthy, reopen factories closed by quarantines or restart supply chains.
FILE - This Jan. 31, 2020, file photo shows a Wall Street sign in front of the New York Stock Exchange. Stocks plunged on Wall Street as investors feared that a virus outbreak that originated in China will dent the global economy. Investors might be on edge after the stock market surrendered five months worth of gains in an alarmingly short amount of time. A viral outbreak has spread to nearly 60 countries and shows little sign of abating.
Now, with the Standard & Poor’s 500 stock index having just plunged 12.8% in barely more than a week — the dizziest such fall since the 2008 financial crisis — many investors are calling for the Fed to swoop in yet again with rate cuts and perhaps other stimulative actions. But this crisis is distinct from most others. And some investors say the tools at the Fed’s disposal aren’t ideally suited to address the economic damage from a viral outbreak verging on a global pandemic.
“From an optics perspective, maybe a rate cut makes a difference in psychology” for investors, said Debbie Cunningham, chief investment officer of global liquidity markets at Federated Hermes. “I don’t think, on a quantitative basis, it makes a hill-of-beans difference.”. Sharp drops in tourism have hurt shopkeepers from Bangkok to Venice to Seoul.
Melda Mergen, deputy global head of equities at Columbia Threadneedle Investments, said she is optimistic that the market’s sell-off will let up soon. Still, she suggested, investors are likely monitoring the number of new infections outside China. If that number were to accelerate, stock prices will likely head further down, regardless of what the Fed does.
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