Wall Street’s three major indexes closed lower for the second day in a row after Federal Reserve Chairman Jerome Powell warned on Wednesday of extended economic weakness due to the coronavirus pandemic and called for Congress to agree on additional fiscal support.
While the indexes closed above their session lows as they pared losses in the final minutes of the day, investors appeared to price in a deeper economic downturn than they had previously expected, fearing Powell’s call for additional stimulus would go unanswered.
While Powell pledged in a webcast to use the U.S. central bank’s power as needed, he suggested that it might not be enough to avoid deep economic damage without more fiscal support.
Market participants said they were relieved by Powell’s indication that the Fed would not push interest rates below zero but some seemed taken aback by his downbeat view on the economy.
Powell’s comments followed a sharp selloff in equities on Tuesday after a warning from leading U.S. infectious disease expert Anthony Fauci that the virus was not yet under control. Fauci’s comments prompted concerns about how the economy would emerge from weeks of virus-related lockdowns.
The Dow Jones Industrial Average fell 516.81 points, or 2.17%, to 23,247.97, the S&P 500 lost 50.12 points, or 1.75%, to 2,820 and the Nasdaq Composite dropped 139.38 points, or 1.55%, to 8,863.17.
Investor bets on a swift recovery had helped the three main U.S. stock indexes climb about 30% from their March lows.
But as officials around the world and in parts of the United States began easing lockdown rules with a view to restarting local economies, fears of a second wave of COVID-19 infections have diminished those hopes.
Energy stocks dropped 4.4% on Wednesday, showing the steepest percentage loss among the 11 major S&P sectors. Interest rate-sensitive bank shares also shed 4.4%, tracking a fall in U.S. Treasury yields.
Wall Street’s fear gauge, the Cboe volatility index , rose for the second day. It gained 2.24 points to 35.28 after touching its highest point since May 4.
Royal Caribbean Cruises Ltd shares tumbled just under 5% after it launched a $3.3 billion bond offering, pledging 28 of its ships as collateral and forecast heavy losses for the first quarter.
Declining issues outnumbered advancing ones on the NYSE by a 6.36-to-1 ratio; on Nasdaq, a 4.31-to-1 ratio favored decliners.
The S&P 500 posted two new 52-week highs and 11 new lows; the Nasdaq Composite recorded 34 new highs and 93 new lows.
On U.S. exchanges 12.43 billion shares changed hands compared with the 11.44 billion average for the last 20 sessions.
