Stocks on Wall Street crashed Wednesday Fed Chairman Jay Powell gave a powerful message about the condition of the coronavirus-ridden economy caused investors to back off their bullish bets.
The Dow Jones Industrial Average dropped 2.17 percent, or 516 points and the S&P 500 dropped 1.75 percent, and the Nasdaq Composite lost 1.55 percent.
Recognizing the drastic effects of the pandemic, Powell said the magnitude and pace of the economic crisis were “significantly greater” than any recession since the Second World War and cautioned that the global situation remained extremely unpredictable.
We are noticing a sharp downfall of economic activity and in terms of employment, and the job gains of the previous decade have been wiped out already, Powell said in remarks prepared beforehand. He stated that this flip of economic fortune has caused a level of hardship that is difficult to fully fathom and present, as lives are upended due to great uncertainty about the future.”
Under growing pressure from President Donald Trump to lower the rate to zero. Powell all but shut the door on negative levels, which he said had yet to prove to be a successful policy option.
Powell’s sobering report comes as creditors prepare to analyze attempts to re-open the economy against the possibility that a hurried re-opening could cause a second wave of infections, bringing the country back to a national shutdown.
Top diseases expert Dr. Anthony Fauci cautioned over the week that the United States could be faced with more hardships and death if states begin to reopen too fast.
The downside in the wider market was driven by energy, paced by a 1.9 percent drop in oil prices despite an unexpected rise in weekly U.S. inventories.
Financials, meanwhile, resumed their poor start to the week, led by banking stocks, as America’s 10-year yield slipped from softer economic data and Powell’s bearish remarks.
JPMorgan Chase (NYSE: JPM), Goldman Sachs (NYSE: GS), and Citigroup (NYSE: C) were down more than 3%.
The Labor Department said on Wednesday that its consumer price index for production dropped 1.3 percent last month, higher than the economists’ prediction of a 0.5 percent fall.
Technology stocks, meanwhile, also added to the sale, led by Alphabet (NASDAQ: GOOGL) and Facebook (NASDAQ: FB), but Amazon (NASDAQ: AMZN) and Netflix (NASDAQ: NFLX) proved to be exceptions to the selloff.
Wall Street red day is arriving as big-name fund managers start to question whether the economy is going too fast, as Powell warned.
David Tepper, founder of Appaloosa Management, told CNBC that the market is “pretty full,” while Bill Miller, founder of Miller Value Capital, said that the wider market has been steadily traded on average over the last five years.