Wall Street stocks fell sharply in volatile trading on Tuesday after the optimism of investors from the surprising cut of interest rates by the Federal Reserve was outpaced by the concerns of slower economic growth due to the coronavirus outbreak.

The blue-chip index Dow Jones Industrial Average declined by almost 3% to 25,917.41 points after temporarily returned to positive territory shortly after Fed cut interest rates. The broader S&P 500 wiped out 2.81% to 3,003.37 points, while the technology Nasdaq Composite dropped by 2.99% to 8,684.09 points.

The CBOE Volatility Index, which measures the implied volatility of S&P 500 options, was up 10.17% to 36.82.

The governor of the US Federal Reserve, Jerome Powell, tried to appease market participants. “The fundamentals of the US economy remain strong. But the virus poses a risk to economic activity”, said the head of the Fed. Therefore, the central bankers have unanimously decided to intervene with a significant and unplanned reduction in interest rates. Interest reductions are usually 0.25 percentage points. The next regular meeting is scheduled for March 18 and 19.

“Of course, the important solutions to this problem must come from other players, especially the healthcare sector”, Jerome Powell admitted. “But we want to fulfill our role”, added he.

“The Fed can’t fight the virus”, says independent economist Edward Yardeni. These are supply chain problems and medical solutions. Monetary policy cannot do much. Nonetheless, reducing the rate helps mitigate the worst, adds Satyam Panday of S&P Global Ratings. He states that monetary policy measures always act with a delayed recovery as soon as concerns about the virus have subsided.

Previously, unjustified hopes for immediate economic stimulus from big industrial countries suppressed the mood of buyers. On Monday, the Dow Jones rose by 5.1% after announcing a conference call between finance ministers and central bank managers from the seven largest industrialized countries (G7). It was the largest daily increase in eleven years. Tuesday’s talks did not produce concrete results. The participants only confirmed their willingness to help the economy.

The Fed is the first central bank to follow a specific action message. Earlier, the Bank of England signaled that it was in no hurry to cut interest rates to deal with possible economic problems before its next scheduled meeting, although it did not rule out such a move. Earlier Tuesday, Mark Carney said communication channels between central banks were open but stressed that “there will be some differences in the different jurisdictions in the exact form and timing of these measures”.

The US Federal Reserve hinted at a statement on Friday about a possible downgrade. In its statement, the Fed included the phrase “act as appropriate”, which used in the past to signal interest intentions. Until the end of last week, investors saw no likelihood of interest reductions at the next Fed meeting on March 18, now that is already considered safe.

Supply chains remain broken, even if the financing conditions for the companies improve again. Even drastic measures such as helicopter money are not expected to have a stabilizing effect on the economy if, for example, people in Hong Kong remain at home.

Two hours before the end of the session, yields on 10-year US bonds fell below 1% for the first time in history, as investors sought to buy safer assets after the Federal Reserve decided earlier to lower interest rates. In today’s trading, the 10-year yield reached 0.993% according to Tradeweb, compared to 1.085% on Monday. The previous record low of 1.031% was set on Monday.

In mid-February, the yield was still around 1.6%. This is increasingly likely to be what has long been considered unthinkable: zero interest rates in the dollar area.

Felix Herrmann, a bond market strategist at the US Blackrock Fund, said ahead of the announcement of the interest rate cut: “The news flow will remain negative for months. That is why I do not consider it impossible to reach the zero interest rate on US Treasury bonds any time soon”. According to him, there are two factors that push US interest rates lower and lower. “On the one hand, expectations for a reduction in interest rates have increased tremendously”. The market now expects four interest rate reductions from the US Federal Reserve by the end of the year.

This would mean that key interest rates in the United States – between 1.00% and 1.25% – will continue to fall. The expectation of a fall in key interest rates leads to higher government bond prices and, in turn, lowers yields.

“On the other hand, US government bonds are one of the few options left in the current environment to protect yourself against market uncertainty”, says Felix Herrmann. The US stock markets have just experienced their worst week since the financial crisis. The stock market sell-off continued on Monday, with the Wall Street interest rate decision again on Tuesday.

Corporate stocks performance

Falling stocks outnumbered advancing ones on the New York Stock Exchange by 1908 to 946 and 50 ended unchanged. On the Nasdaq Stock Exchange, 1950 fell and 732 advanced, while 55 ended unchanged.

Thermo Fisher was one of the biggest winners on the US stock market with its stocks increasing by 3.4%. The lab equipment provider plans to take over German rival Qiagen for 10.4 billion EUR. The two companies will do well, according to Evercore analysts. Qiagen’s US-listed stocks jumped by 14%.

Coca-Cola Company rose by 0.25%, being the only one gainer within the blue-chip index during the day.

Among the losers were Hyatt shares, wiping out more than 4% of the company’s market cap. The hotel group issued a warning about its earnings due to the coronavirus epidemic.

Shares in Unum Group fell by 8.99% to 5-year lows.

The top performers on the S&P 500 were Newmont Goldcorp Corp (+6.19%), CME Group Inc (+3.19%) and Lennar Corporation (+2.59%), while on the flipside were Unum Group (-8.99%), The Charles Schwab Corporation (-8.77%) and SVB Financial Group (-8.36%).