Stocks ended sharply lower Thursday after the Federal Reserve said the U.S. economy could take a long time to recover after being battered by lockdown measures instituted during the coronavirus pandemic.
Rising cases of coronavirus infections as lockdowns ease in many countries, including the U.S., also put investors on the back foot Thursday. Virus cases in the U.S. crossed 2 million, according to John Hopkins University.
The Dow Jones Industrial Average saw its worst day since the March stock selloff, finishing down 1,861 points, or 6.9%, to 25,128, the S&P 500 dropped 5.89% and the Nasdaq slumped 5.27%.
The Dow at one point traded down more than 1,900 points, or almost 7.1%.
Bank stocks such as Citigroup (C) - Get Citigroup Inc. Report and JPMorgan Chase (JPM) - Get JP Morgan Chase & Co. Report tumbled after Treasury yields sank as investors abandoned equities and moved into bonds.
David Trainer, chief executive of the Nashville investment research firm New Constructs, said Thursday's selloff likely was an overreaction "because a second wave of coronavirus has already been priced into the market."
"Now is the chance to pick up stocks at a discount. Many investors missed the melt-up in stocks over the past few weeks. The market is fairly valued, in my opinion, so large pullbacks create opportunity for value investors," Trainer added.
The Federal Reserve on Wednesday left interest rates unchanged and projected rates would remain near zero through 2022. The central bank also said it would keep buying bonds and do what it takes to prop up the economy.
"The Fed remains pessimistic about the economy and said the coronavirus outbreak will continue to weigh on economic activity, employment and inflation in the near term. It expects unemployment to remain elevated for years," said Anthony Denier, CEO of New York-based commission-free trading platform Webull.
"Because of this, the Fed is leaving rates unchanged and said it expects to leave them unchanged until 2022."
Fed officials made clear they planned to hold rates at near zero until they were confident the economy was on track for inflation to reach their 2% target and for the unemployment rate to fall back in line.
“We’re not thinking about raising rates; we’re not even thinking about thinking about raising rates,” Federal Reserve Chairman Jerome Powell told reporters at a news conference following the Fed's announcement on interest rates.
“We are strongly committed to using our tools to do whatever we can for as long as it takes," he added.
The Fed said it expected the U.S. economy to contract 6.5% in 2020, then expand by 5% in 2021, raising the specter of a possible boomerang recovery that may still be fraught with both uncertainty and possibly inflation.
The Dow on Wednesday declined 282 points, or 1.04%, to 26,989, the S&P 500 declined 0.53% and the tech-heavy Nasdaq closed at a record high of 10,020, up 0.67%.
Applications for unemployment benefits in the U.S. eased up last week for a 10th consecutive week as the pace of corporate layoffs related to the pandemic-induced economic shutdown continued to drop.
The Labor Department said 1.542 million Americans filed jobless claims for the week ended June 6, down from the 1.877 million claims for the week earlier. States continued to slowly reopen after more than 2 1/2 months of being shuttered amid the coronavirus pandemic.
However, there are fears that those out of work may not have jobs waiting for them after many businesses were shuttered.
”My assumption is that there will be a significant chunk, well, well into the millions of people who don’t get to go back to their old jobs, and there may not be a job in that industry for them for some time. It could be some years before we get back to those people finding jobs,” said Federal Reserve Chairman Jerome Powell on Wednesday.
Continuing claims, which is the number of people not just filing but staying on unemployment benefits, were 20.929 million for the week ended May 23.
The decline in continuing claims "affirms what we saw in last Friday's jobs report: The labor market recovery appears to be underway," said Daniel Zhao, a senior economist at Glassdoor.
"The road ahead promises to still be rocky, however, as transition points in the economy are notoriously difficult to predict and the unsteady declines over the last few weeks do not inspire confidence that the recovery is on solid ground," Zhao added.
"While the labor market is not up and running yet, it is at least closer to standing on its own two feet.”