Dow closes down 600 points after government stimulus package fails again

The Dow Jones Industrial Average is heading for its worst month since 1931.

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By Lucy Bayly

Stocks sank again Monday, after an emergency fiscal stimulus package was again rejected by the Senate and even a new round of cash injection from the Federal Reserve failed to raise trader optimism.

The Dow Jones Industrial Average closed with a decline of almost 600 points, tracking its way toward the worst month for the blue-chip index since 1931.

"These large market declines can reverse themselves over time. This is the history of the U.S.," Larry Kudlow, head of the National Economic Council, told CNBC earlier Monday. "There's no reason why we can't get through this period."

The S&P 500 closed down by around 3 percent and the tech-heavy Nasdaq held up best, with a decline of just 0.2 percent.

Trader sell-off was fueled by tightening financial conditions even after “extensive new measures to support the economy” announced by the Federal Reserve. The central bank said Monday it would inject billions more into the financial system, boost credit flow for businesses and consumers, and provide $300 billion in new financing.

However, traders are laser focused on the stimulus plan that is currently stalled on Capitol Hill and was kicked back again early Monday afternoon, with lawmakers saying it would not get another pass until Friday.

"We need to get this thing passed today," Secretary of the Treasury Steven Mnuchin said Monday morning in an interview with CNBC. “We need Congress to approve additional funds today so that we can move forward and support American workers and the American economy,” he said.

However, tempers erupted after the Senate failed for a second time to advance the massive stimulus package that will address the economic impact of the coronavirus pandemic, with lawmakers accusing the other party of holding up negotiations.

American companies could lose as much as $4 trillion — one-fifth of the country's total annual economic output — due to the pandemic, Ray Dalio, founder of hedge fund giant Bridgewater Associates, said in an interview with Reuters.

With more and more states — and countries — implementing lockdowns and closing businesses, the financial impact of those measures threatens to outweigh even the most extreme government efforts to shore up the economy.

“What needs to happen is very similar to what happened in the war years, but without the fighting,” Dalio said, noting that the government needs a rescue plan.

Until that happens, traders will continue to rush for the exit.

"The Federal Reserve continues to do all it can to keep markets operating. Now, the spotlight is on elected leaders to do their jobs as well," said Mark Hamrick, senior economic analyst for Bankrate.

"We are doing the best we can, mobilizing America's resources. We are capable of dealing with problems and coming out the other side," Kudlow said.

Monday marked the first day since 9/11 that the New York Stock Exchange operated with an empty floor, after trading was switched to an all-electronic format until further notice due to safety concerns about the coronavirus pandemic.