U.S. stock benchmarks closed sharply lower Wednesday 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 scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II,” Powell said.
How did major indexes fare?
The Dow Jones Industrial Average DJIA, -2.17% fell 516.67 points, or 2.2%, to end at 23,247.97, while the S&P 500 index SPX, -1.74% retreated 50.12 points, or 1.8%, ending at 2,820. The Nasdaq Composite Index COMP, -1.54% finished at 8,863.17, off 139.38 points, or 1.6%.
What drove the market?
Hopes for a swift U.S. rebound from pandemic shocks collided with 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.
“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.
But oil futures contracts could end up in negative territory again, warned the Commodity Futures Trading Commission in a staff advisory Wednesday that explained why they are “expected to prepare for the possibility that certain contracts may continue to experience extreme market volatility, low liquidity and possibly negative pricing.”
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%.
Which companies were in focus?
- The Dow’s sharp drop Wednesday was led by shares of American Express Co. AXP, -6.14%, Raytheon Technologies Corp. RTX, -4.61% and Dow, Inc. DOW, -4.26%, each seeing their shares close down more than 4.8%.
- Cisco Systems Inc. CSCO, -2.93%, reporting after the bell, showed stronger resilience in its earnings than expected Wednesday. Shares were headed higher in after-hours trading.
- General Electric Co. GE, -3.50% shares tumbled 3.5% Wednesday to its lowest finish since 1991, amid growing concerns over the troubled aerospace industry as the COVID-19 pandemic continues.
- Shares of Tesla Inc. TSLA, -2.27% retreated 2.3% after it apparently wrestled a deal to reopen its sole U.S. car-making plant, with Wall Street worries moving on to possible capacity constraints and whether the company will meet longer-term goals.
- Ride-hailing company Uber Technologies Inc. UBER, +1.91% and Grubhub Inc. GRUB, -3.72% are in talks over an acquisition that would value Grubhub at roughly $6 billion, according to a report in the Wall Street Journal on Wednesday. Uber also announced it would sell $750 million of bonds due 2025. Shares of Uber gained 1.9%, while those for Grubhub fell 3.7%. Opinion: Uber plus Grubhub called ‘a new low in pandemic profiteering,’ and that is not the only problem
- Royal Caribbean Cruises Ltd. shares RCL, -4.98% fell 5% Wednesday, after the cruise operator said it would sell $3.3 billion of debt. The company will use the proceeds to pay down another $2.35 billion loan.
- Goodyear Tire & Rubber Co.(TICKER:GT) said it would sell $600 million of bonds. The tire maker expects to use the proceeds from the offering to repay debt set to mature in August. Its shares finished down 6.8%.
- Walmart Inc. WMT, -0.05%, Target Crop., TGT, -0.20%, Dollar General Corp DG, -0.08% and BJ’s Wholesale Club Holdings BJ, -0.17% saw their shares slump, even after BofA Securities raised their stock price targets for the grocery and goods retailers. Walmart’s target was raised to $145 from $140. Shares ended 0.1% lower.
How did other markets trade?
Crude-oil prices fell Wednesday, with West Texas Intermediate Crude for June delivery CLM20, -0.97% down 52 cents, or 2%, to finish at $25.26 a barrel. In precious metals, the price of an ounce of June gold GCM20, +0.96% rose $9.60, or 0.6%, to end at $1,716.40.
The U.S. dollar strengthened slightly against a basket of its six major rivals, with the ICE U.S. dollar DXY, +0.28% was up 0.3%. The greenback is up 4% year-to-date.
In Europe, stocks tumbled too. The Stoxx Europe 600 SXXP, -1.93% fell 1.9%.
William Watts provided additional reporting