Stock markets slumped on Thursday with the S&P 500 and the Dow set for their steepest percentage declines since April 1, as investors fretted over a new wave of coronavirus infections and a gloomy economic forecast from the Federal Reserve.
The three main U.S. stocks indexes were trading at a one-week low as new coronavirus cases rose in the United States after five weeks of declines, according to a Reuters analysis.
The U.S. central bank on Wednesday kept its benchmark rate at its current record low rate, and warned the recovery from the coronavirus will be slow.
“These forecasts reminded investors that a lot of economic damage has already been done by the coronavirus lockdowns and that while central banks and governments are providing support, the path to recovery remains uncertain,” said Colin Cieszynski, chief market strategist at SIA Wealth Management in Toronto.
In Toronto, the S&P/TSX Composite Index was down about 500 points or almost three per cent.
Just about every sector was in the red with financial, energy and material sectors, that track economic growth, posting the biggest declines.
Wall Street’s fear gauge, the CBOE volatility index, rose to 32 points, its highest level since May 15.
The easing of lockdowns and a massive stimulus program to help the economy bounce back quickly to pre-pandemic levels have been pivotal in helping the three main indexes recover about 40 per cent from a deep, virus-induced selloff.
“We’re actually going to have a W-shaped recovery,” said Chad Oviatt, director of investment management for Huntington Private Bank in Columbus, Ohio. “Markets are dealing with the fact that we now have an elongated recovery period.”
“The quick, V-shaped recovery market bulls have been banking on is far from a done deal, that there may be significant bumps and setbacks along the way and that any economic rebound we do get could be uneven,” Cieszynski said.
The S&P 500 and the Dow Jones indexes ended lower on Wednesday after Fed Chair Jerome Powell acknowledged it could take years for the millions of people laid off due to COVID-19 to get back to work, even as he reiterated his promise to support the virus-hit economy.
A Labour Department report showed about 1.54 million people applied for state unemployment benefits for the week ended June 6, roughly in line with estimates.
Boeing Co shed 9.1 per cent 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. Spirit AeroSystems tumbled 12.1 per cent.
Nearing middayt the Dow Jones Industrial Average was down 992.42 points, or 3.68 per cent, at 25,997.57, the S&P 500 was down 98.04 points, or 3.07 per cent, at 3,092.10. The Nasdaq Composite was down 217.44 points, or 2.17 per cent, at 9,802.91.
Shares of banks, which tend to benefit in a higher rate environment, slipped 6.6 per cent, extending losses after Fed policymakers saw key overnight interest rates remaining near zero through at least 2022.
Shares of airlines and cruise operators were some of the biggest percentage losers on the S&P 500.
The S&P 1500 airlines index tumbled 9.2 per cent, while Norwegian Cruise Line Holdings Ltd and Royal Caribbean Cruises Ltd slumped 13.6 per cent and 8.2 per cent, respectively.
Declining issues outnumbered advancers for a 15.18-to-1 ratio on the NYSE and a 10.29-to-1 ratio on the Nasdaq.
The S&P index recorded four new 52-week highs and no new low, while the Nasdaq recorded 15 new highs and five new lows