Stock markets continued to sink on Wednesday, after dumping into the close Tuesday, as investors digested negative comments from the key Federal Reserve official. Concerns about reopening the economy along with worries over the market’s valuation as rocked stocks.
The Dow Jones Industrial Average slipped 500 points or 2.1%. The S&P 500 lost 1.9% lower while the Nasdaq Composite gave up 1.9%. Markets are currently struggling to hold up around session lows as of 1 pm EST, after dropping to session lows around noon EST when billionaire investor David Tepper referred to this market as the second-most overvalued one he’s ever seen.
Stock Index ETFs are echoing moves in the benchmark stock indexes as well. The SPDR S&P 500 ETF Trust (SPY), and the SPDR Dow Jones Industrial Average ETF (DIA) are both lower today, while the Invesco QQQ Trust (QQQ) held up slightly better but is still in the red, as the average continues to struggle to reach the February highs.
Chairman Powell commented in prepared remarks for a webcast event with the Peterson Institute for International Economics that not enough has been done to manage the economic damage from the coronavirus pandemic.
“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 said. Powell added, however, the economy should see a substantial recovery once the coronavirus is under control.
Powell’s remarks came following a record loss of jobs last week, and ongoing concerns that states may be unable to contain the dissemination of Covid-19 as they attempt a partial reopening.
“Everything is dependent on the next several months and how successful businesses can re-open,” Nick Raich, CEO of The Earnings Scout, wrote in a note. “All the stimulus in the world will not offset businesses closing their doors for an extended time.”
White House health advisor Dr. Anthony Fauci told Congress on Tuesday that he’s concerned that some states are too focused on reopening businesses without regard for the consequences, and may have ” little spikes” in coronavirus cases that could exacerbate into massive outbreaks if they are not contained.
“What I’ve expressed then and again is my concern that if some areas, cities, states, what have you, jump over those various checkpoints and prematurely open up without having the capability of being able to respond effectively and efficiently my concern is that we will start to see little spikes that might turn into outbreaks,” Fauci testified at a hearing before the Senate Committee on Health, Education, Labor, and Pensions.
Analysts remain concerned that stocks may have trouble making it higher, and are vigilant given that stocks have continued to struggle near major technical levels such as the 61.8% retracement from the February lows, and 3,000 on the S&P 500.
“You have a market just waiting to see how the economy opens,” said Quincy Krosby, Prudential chief market strategist. “You’ve got the S&P 500 at an important technical level, which is 3,000, and it needs a catalyst to climb above that. One of the main catalysts will be if the economy can open up without an increase in cases.”
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