Dow sheds 2% as Wall Street digests Fed’s grim outlook for economy

U.S. stock benchmarks traded sharply lower Wednesday afternoon as Wall Street digested a grim near-term economic outlook from Federal Reserve Chairman Jerome Powell and as state and federal officials attempt to restart businesses from a coronavirus-induced lockdown.

“The recovery may take some time to gather momentum and the passage of time can turn liquidity problems into solvency problems,” Powell said.

What are major indexes doing?

The Dow Jones Industrial Average

fell 460 points, or 1.9%, to 23,297, while the S&P 500 index

retreated 51 points, or 1.8%, at 2,818. The Nasdaq Composite Index

traded at 8,844, off 158 points, or 1.8%.

Need to Know:Why Druckenmiller says the risk-reward of investing in stocks has never been worse

What’s driving the market?

Hopes for a swift U.S. rebound from pandemic shocks collided with Chairman Powell’s “highly uncertain” near-term outlook for the economy on Wednesday, even as businesses across the nation work to reopen.

Powell said additional government aid to households and businesses may be “worth it” to keep lasting damage to the economy from developing, during a webcast discussion with the Peterson Institute for International Economics on Wednesday.

“Additional fiscal support could be costly but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery,” Powell said, but added it was ultimately up to Congress and the administration to consider this trade-off.

“Everyone’s scared and everyone’s shell shocked,” Kent Engelke, chief economic strategist at Capitol Securities Management, told MarketWatch. “You wonder how many days can this go on and people are on edge,” he said, adding that Powell and Dr. Anthony Fauci “didn’t say anything new, they just validated the fears we have.”

Investors cited remarks by Fauci on Tuesday as contributing to the sour mood in equities. The director of the National Institute of Allergy and Infectious Diseases told a Senate committee that reopening too soon could lead to more disease outbreaks and unnecessary deaths.

See: U.S. states start to reopen, ending coronavirus lockdowns

“Millions of Americans are thinking they’re going to wake up from it. They’re just going to go back to work or reopen their restaurant,” Jason Thomas, chief executive officer at Savos Investments, a division of AssetMark, told MarketWatch.

“It’s becoming more and more clear that’s just not how it plays out.”

Hedge-fund investor David Tepper also gave a sobering assessment of the U.S. stock market, saying recent levels made it the “second-most overvalued” he’s seen, after the 1999-2000 tech bubble, in an interview with CNBC on Wednesday.

Tepper also said the Fed’s extraordinary backstop of financial markets could lead to further stock gains.

However, Powell said not to expect negative interest rates, after the fed funds futures market last week, for the first time, showed some traders betting they could become reality in the U.S.

President Donald Trump on Tuesday tweeted that the U.S. should accept “the GIFT” of negative rates.

In U.S. economic reports, the April producer-price index plunged by 1.3%. Economists surveyed by MarketWatch, on average, forecast the index to fall 0.5%.

See:Coronavirus deaths in the U.S. are likely higher than the official tally, Dr. Fauci tells Senate committee

Which companies are in focus?
How are other markets trading?

Crude-oil prices fell Wednesday, with West Texas Intermediate Crude for June delivery

down 80 cents, or 3.1%, to $24.96 a barrel. In precious metals, the price of an ounce of June gold

rose $9.60, or 0.6%, to settle at $1,716.40.

The yield on the 10-year U.S. Treasury note

fell 4 basis points to 0.64%.

The U.S. dollar strengthened slightly against a basket of its six major rivals, with the ICE U.S. dollar

was up 0.3%. The greenback is up 3.9% year-to-date.

In Europe, stocks were on the slide. The Stoxx Europe 600

fell 1.9%.

In Asia overnight, China’s benchmark CSI 300 index

gained 0.2%, Hong Kong’s Hang Seng

closed 0.3% lower and Japan’s Nikkei

shed 0.5%.

William Watts provided additional reporting

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