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Stocks drop despite Federal Reserve's vow of unlimited help

Stocks declined on Monday despite the Federal Reserve's announcement of an "unlimited" expansion of bond purchasing programs to grease the economy's wheels as the coronavirus pandemic causes business to grind to a halt. 

The mood on Wall Street soured when the Senate faltered in passing a massive fiscal stimulus bill aimed at offering relief to consumers and businesses. The Dow lost 582 points, or 3%, to close at 18,592 shortly before the close. The broad-based S&P 500-stock index fell 3% and has now lost $9.5 trillion in value, down roughly a third from its all-time high on February 19. The tech-heavy Nasdaq composite ended the day down 0.3%. 

Senate Majority Leader Mitch McConnell warned it could be several days before the Senate can proceed to a vote on the deal and called the failed procedural vote "mindless obstruction."

The Fed announced a series of sweeping steps Monday morning, saying it will lend to small and large businesses and local governments, on top of extending its bond buying programs to a range of companies. 

Fed official uncertain how economy will fare during the coronavirus crisis

The central bank's ongoing efforts to support the flow of credit through an economy ravaged by the viral outbreak buoyed investors after Wall Street suffered brutal losses last week, wiping out the stock market gains of President Donald Trump's entire presidency so far. 

"Safe to say, the chaos of the last few weeks is going nowhere and the way this week has started, it could feasibly be the most remarkable week of the lot," Craig Erlam, senior market analyst for OANDA Europe, said in a research note. 

The Fed announced it will buy an unlimited amount of Treasury bonds and mortgage-backed securities with the goal of supporting "smooth market functioning," it said in a statement. The central bank also said it will set up three new lending facilities that will provide up to $300 billion by purchasing corporate bonds, buying a wider range of municipal bonds, and purchasing asset-backed securities from a range of businesses.

Four-year loans, six months interest free

The new financing for companies and households are "perhaps the most interesting announcement this morning," said Capital Economics senior U.S. economist Michael Pearce in a research report. 

"At first glance," Pearce said, "the terms appear to be very generous, including four-year loans to investment-grade corporates under a new primary market corporate credit facility, with no interest payments for the first six months, suggesting that take-up will be strong."

Before the Fed's announcement, investors had been focused on the failure of the stimulus bill to move forward in the Senate. On Monday morning, U.S. senators returned to Capitol Hill to resume negotiations on another coronavirus relief bill expected to cost the nation as much as $2 trillion.

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Republicans say they've already made big concessions, with some calling the bill "unemployment insurance on steroids," but Democrats say there aren't enough protections for workers and some are upset over what they're calling a new "slush fund" in the bill for favored industries and companies. 

It's likely the bill will be rewritten and passed "sometime on Monday," Bruce Bittles, chief investment strategist of Baird, wrote in a research note. "Investor confidence will rely on seeing a slowdown in new cases of the coronavirus and if there is a sense that the Administration and Congress are moving quickly."

With reporting by The Associated Press. 

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