[Ensure you have all the info you need in these unprecedented times. Subscribe now.]
U.S. stocks slumped to a three-week low after Jerome Powell warned economic risks from the virus are significant and tensions with China flared. Treasuries and the dollar advanced.
The S&P 500 briefly fell below 2,800 — a level that has provided support in the past month — after the Federal Reserve chairman said the threat of a lasting downturn can deepen without additional government spending. Equities also dropped after a federal savings plan delayed moving funds into an index with Chinese stocks, adding to tensions stoked by President Donald Trump. U.S. airlines plummeted after a warning that demand for flights will lag behind pre-coronavirus forecasts until at least 2025.
The stock weakness has the S&P 500 headed for its worst week since March 20, the session before a furious 30% rally started. Health official Anthony Fauci warned May 12 that the pandemic could worsen if states open too soon, and some Fed chiefs expressed concern the recession will be long. Famed investor Stanley Druckenmiller said equities are too high, while David Tepper called the stock market the most overvalued ever outside of the 1999 bubble.
“It continues the theme from yesterday that the recovery will be slower and more uneven than what markets may currently be discounting,” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute. “With the nice run off the lows, it makes sense to take some profits.”
Traders of fed funds futures pushed bets on a negative policy rate into next year. Powell acknowledged the speculation, but said such a move was not being considered — though he stopped short of completely ruling the tool out as an option in the future.
“Fed watchers might find relief in the fact that Powell remains committed to deploy his remaining arsenal to the fullest extent as we continue to ride out the pandemic,” said Mike Loewengart, managing director of investment strategy at E-Trade Financial. “This means their toolkit primarily relies on additional fiscal stimulus.”
Republicans universally rejected a $3 trillion stimulus measure drafted by House Democrats to bolster the U.S. economy, but the draft plan has the seeds for an eventual, smaller compromise.
Elsewhere, oil fell as investors weighed stockpile declines against a darker outlook for demand and economic recovery.
Rita Nazareth, Vildana Hajric and Katherine Greifeld were the primary contributors to this report.
Want more news? Listen to today's daily briefing: