Coronavirus Fears Knock Off $3.6 Trillion in Market Value
Stock market investors took it on the chin the last week of February as stocks plunged due to fears that the coronavirus will negatively affect economic activity and drive down corporate profits. The S&P 500, which peaked at 3,393.52 on Feb. 19, was hit with a wave of selling and eventually finished the month down 13 percent from that all-time high – eliminating $3.6 trillion in market value. The S&P 500 posted its biggest weekly decline since the financial crisis of 2007-2008. Investors will be closely watching China economic data in the weeks ahead, as well as monitoring the spread of the virus to the U.S. and other major economic regions.
Federal Reserve Signals Rate Cut If Coronavirus Affects Economy
Federal Reserve Chairman Jerome Powell weighed in on the coronavirus-driven stock market selloff by signaling that the central bank could cut interest rates. In a brief, prepared statement, Powell said, “The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy.” Former Fed Governor Kevin Warsh told CNBC the Fed should cut rates. “They might be wrong, but I’m willing to give them the benefit of the doubt and act now, because the risk-reward seems quite compelling,” Warsh said. The Fed’s next meeting is March 17-18.
Morgan Stanley Buys E*TRADE For $13 Billion
Morgan Stanley became the latest financial services powerhouse to enter the discount brokerage business when it announced on Feb. 20 that it has agreed to buy E*TRADE for about $13 billion. It’s the biggest acquisition by a major financial company since the 2008 financial crisis. Under terms of the deal, E*TRADE stockholders will receive 1.0432 Morgan Stanley shares for each E*TRADE share, which represents a purchase price of $58.74 based on the closing price of Morgan Stanley common stock on Feb. 19. The combined company will have $3.1 trillion in client assets, 8.2 million retail client relationships and accounts, and 4.6 million stock plan participants. The transaction comes three months after Charles Schwab shook up the wealth management industry when it announced on Nov. 26 that it will buy discount brokerage competitor TD Ameritrade in an all-stock deal valued at $26 billion. Commenting on the E*TRADE acquisition, Bankrate.com Chief Financial Analyst Greg McBride said, “Between zero trading commissions and competitive yielding savings accounts and cash management products, the competition for consumers’ cash and investments is as fierce as ever. And this trend reaches a broad spectrum of households, it isn’t just the ultra-wealthy that are in demand.”
Visa Plans Overhaul of Swipe Fees
Visa Inc. plans to make the biggest changes in 10 years to the fees it charges businesses to accept credit cards. The move, first reported by Bloomberg on Feb. 4, is Visa’s boldest bet to convince more businesses to use credit cards rather than checks when making payments. Merchants currently pay more than $100 billion in credit card fees, according to The Nilson Report, and credit, debit and prepaid cards are used to pay for $7 trillion in goods and services in the U.S. Nilson estimates that Visa has a 70% share of the market.