At closing bell, the Dow had plummeted 516.81 points, as the S&P 500 underwent a 50.12-point loss. The Nasdaq Composite fell into red territory by 139.38 points.
The decline in stock values proved broad, with 11 of the S&P 500’s sectors finishing in the red. The index’s downturn was largely led by the energy and financial branches, which plummeted nearly 5% and 3%, respectively. As for the Dow Jones, Raytheon Technologies and Dow Inc. fell at least 5%, proving to be the index’s worst-performing stocks.
The major indices experienced their massive slump at midday trading, after several investors and Jerome Powell, the head of the US Federal Reserve, provided a dim outlook on an economic recovery.
Oil prices, meanwhile, slipped by more than 1%.
Nick Raich, the CEO of the Earnings Scout, wrote in a note seen by CNBC that the futures of US markets and the economy as a whole are “dependent on the next several months and how successful businesses can re-open.”
“All the stimulus in the world will not offset businesses closing their doors for an extended time,” he added.
Raich’s remarks come as Washington, DC, officials extended the national capital’s stay-at-home order to June 8 after failing to document a sufficient decline in COVID-19 coronavirus cases. The order was initially set to expire on May 15.
Additional Measures Needed to Support US Economy
Wednesday’s stock sell-off was further fueled by comments from Powell, who said in prepared remarks for a livestream with the Peterson Institute for International Economics that additional measures need to be implemented in order to help bolster the economy to a pre-COVID-19 level and avoid a prolonged recession.
“The recovery may take some time to gather momentum, and the passage of time can turn liquidity problems into solvency problems,” Powell said during the virtual event. “Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery.”
“While the economic response has been both timely and appropriately large, it may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risks,” he continued, noting that the “scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II.”
Since the launch of various stay-at-home orders in the US, the Federal Reserve has initiated a multitude of measures to further support the economy, some of which include a slash in interest rates to zero and the creation of nine emergency lending programs.
And yet, Powell’s remarks weren’t the only ones during the day’s trading that sent investors panicking. Enter billionaire investor David Tepper, who told CNBC’s “Halftime Report” that before the Wednesday sell-off, the stock market was “maybe the second-most overvalued I’ve ever seen.”
US-China Trade Tensions Worry Investors
And then there’s the matter of escalating tensions between the US and China, more so regarding Beijing’s handling of the COVID-19 pandemic and the possible effects it may ultimately have on trading between the two countries.
Recently, US lawmakers introduced a new sanctions bill that would give Washington the authorization to impose taxes on China if it fails to provide a detailed account of the origins of the COVID-19 outbreak.
To no one’s surprise, the bill was met with a stern objection from Beijing. Zhao Lijian, the spokesperson for China’s Foreign Ministry, said on Wednesday that the legislation seeks to start a probe “with a presumption of guilt to shift [the US’] responsibility for the failure in the fight against the epidemic on China.”
This is not the first time that China has slammed the US over its repeated accusations regarding the pandemic. In fact, US President Donald Trump has on several occasions suggested that the COVID-19 virus emerged from a lab in Wuhan, once the epicenter of the outbreak in China. However, such claims have since been rejected by officials, including those from the US.
Sophie Chardon, a strategist at Lombard Odier, told the Wall Street Journal that “more and more noise” will inevitably bolster the back and forth between US and Chinese officials and lead to an even more tense trade conflict.
“At the end of the day, it’s not good for the economy to have very high tariffs - especially in a year when you have US elections and you already have the [COVID-19] crisis.”