Wall Street plummeted on Thursday as investors reacted to renewed fears of a pandemic resurgence and digested dour economic forecasts from the U.S. Federal Reserve.
All three major U.S. stock indexes lost well over 5%, posting their worst one-day percentage drops since March 16, when markets were sent into freefall by the abrupt economic lockdowns put in place to contain the pandemic. The Nasdaq snapped a three-day streak of record closing highs.
The sell-off was broad, with all 11 major sectors of the S&P 500 falling from nearly 4% to well over 9%.
"There's really no buy point," said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago. "It's pretty much selling all the way through."
Tim Ghriskey, chief investment strategist at Inverness Counsel in New York, agreed.
"Everything's for sale," Ghriskey added. "There's fear we're near a top."
Deaths of Americans from COVID-19 could reach 200,000 in September, a grim result of the United States' economic re-opening before getting growth of new cases down to a controllable level, according to a leading health expert.
At the conclusion of its two-day monetary policy meeting on Wednesday, the U.S. Federal Reserve released its first pandemic-era economic outlook, after which Chair Jerome Powell warned of a "long road" to recovery.
"The Fed keeping rates steady through 2022 could give investors the impression that the Fed may be more concerned about the pace of economic recovery than originally anticipated," said Joseph Sroka, chief investment officer at NovaPoint in Atlanta.
Economic data appeared to back up the Fed's gloomy economic projections, with jobless claims still more than double their peak during the Great Recession and continuing claims at an astoundingly high 20.9 million.
A year-on-year drop in core producer prices also reflected the central bank's disinflationary concerns.
The CBOE volatility index, a barometer of investor anxiety, posted its largest one-day point gain since March 16.
The Dow Jones Industrial Average fell 1,861.82 points, or 6.9%, to 25,128.17, the S&P 500 lost 188.04 points, or 5.89%, to 3,002.1 and the Nasdaq Composite dropped 527.62 points, or 5.27%, to 9,492.73.
Among the major S&P 500 sectors, energy and financials suffered the largest percentage drops, plunging by 9.5% and 8.2%, respectively.
Interest rate-sensitive banks slipped 9.6%, after the Fed indicated key interest rates would remain near zero through at least 2022.
Travel-related companies, among the hardest hit by mandated lockdowns, were sharply lower.
The S&P 1500 airlines index tumbled 13.8%, while Norwegian Cruise Line Holdings Ltd and Royal Caribbean Cruises Ltd dropped 16.5% and 14.3%, respectively.
Boeing Co was the heaviest weight on the Dow, shedding 16.4% after its top supplier Spirit AeroSystems Holdings Inc announced a 21-day layoff for staff doing production and support work for Boeing's 737 program.
Declining issues outnumbered advancing ones on the NYSE by a 17.60-to-1 ratio; on Nasdaq, a 12.98-to-1 ratio favored decliners.
The S&P 500 posted four new 52-week highs and no new lows; the Nasdaq Composite recorded 19 new highs and nine new lows.
Volume on U.S. exchanges was 15.31 billion shares, compared with the 12.83 billion average over the last 20 trading days.
Global equity markets fell sharply on Thursday in their worst sell-off since markets crashed in March, while safe-haven assets rose after the Federal Reserve's sobering outlook cast doubt on hopes for a V-shaped recovery from the coronavirus pandemic.
A broad rout slammed Wall Street, snuffed a 10-day winning streak in Asia and plunged major European bourses about 4%, to halt a recent rally that had recouped much of the market's deep losses and even drove the Nasdaq to record highs this week.
U.S. Treasury and euro zone government bonds rallied after the Fed on Wednesday signaled it plans years of extraordinary support to counter the economic fallout from a pandemic that is still spreading and still has no cure or vaccine.
U.S. gold futures settled more than 1% higher and the dollar, yen and Swiss franc all benefited from safe-haven flows as Wall Street slumped.
The number of Americans seeking jobless benefits fell last week, but millions laid off due to the pandemic continue to receive unemployment checks, suggesting the U.S. labor market could take years to heal even as hiring resumes.
The Fed is not painting a perfect V-shaped recovery and is going to be ultra-accommodative for a very long time, said Esty Dwek, head of global market strategy at Natixis Investment Managers in Geneva. A V-shaped recovery refers to a sharp economic resurgence following a sharp decline.
"Suddenly the question is, 'Well, why are they going to be so accommodative if the recovery is going so well?'" she said.
Some of the sell-off "is probably just by not being the V-shape the market is priced for right now, and some of it is taking a breather after the last few weeks," Dwek said.
In a reality check to the stock market's recent euphoria, the Fed predicted the U.S. economy would shrink 6.5% in 2020 and unemployment would still be at 9.3% at year's end.
MSCI's all-country world index, which tracks shares in 49 nations, fell 4.78% to 513.94, its biggest slide since March 18, when it declined 5.1%. Europe's broad FTSEurofirst 300 index closed down 4.11% at 1,378.16.
Chair Jerome Powell at the end of a two-day meeting of policymakers confirmed the Fed was studying yield curve control, a form of easing already employed by Japan and Australia.
John Vail, chief global strategist at Nikko Asset Management in Tokyo, said in his view the Fed is moving toward yield curve control, which should keep 10-year yields at 1% or less and will tend to suppress the dollar, at least for a while.
Yields on 10-year Treasury notes dropped sharply from last week's peak of 0.96%. The 10-year Treasury note fell 8.6 basis points to yield 0.6625%, while Germany's 10-year benchmark fell 10 basis points to a nine-day low at -0.43%.
The yen rose to a one-month high against the dollar, while the Swiss franc climbed to a three-month peak. The dollar also rose 0.4% to 96.556, against a basket of currencies.
The euro fell 0.63% to $1.1297, and the yen slid 0.22% to $106.8500.
U.S. gold futures settled up 1.1% at $1,739.80 an ounce.
Market sentiment also took a hit as new coronavirus infections in the United States showed a slight increase after five weeks of declines, only part of which was attributed to expanded testing detecting more cases.
Eric Toner, a senior scholar at the Johns Hopkins Center for Health Security, said, "There is a new wave coming in parts of the country. It's small and it's distant so far, but it's coming."
Oil prices tumbled, fueled by renewed concerns about demand destruction as new cases of coronavirus tick up globally, while the United States saw another large build in crude inventories.
Brent crude futures settled 7.62% lower at $38.55 a barrel. U.S. crude oil futures settled at $36.34 a barrel, down $3.26, or 8.23%.
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