Wall Street ends down on Powell's sober outlook, call to Congress for help

By Sinéad Carew New York (Reuters) - The S&P 500 closed lower for the second day in a row after Federal Reserve Chairman Jerome Powell warned on Wednesday of extended economic weakness due to the coronavirus pandemic and called for Congress to agree on additional fiscal support. Stocks sold off as investors appeared to price in a deeper economic downturn than they had previously expected as they worried that Powell's call for additional stimulus would go unanswered

Reuters May 14, 2020 02:05:48 IST
Wall Street ends down on Powell's sober outlook, call to Congress for help

Wall Street ends down on Powells sober outlook call to Congress for help

By Sinéad Carew

New York (Reuters) - The S&P 500 closed lower for the second day in a row after Federal Reserve Chairman Jerome Powell warned on Wednesday of extended economic weakness due to the coronavirus pandemic and called for Congress to agree on additional fiscal support.

Stocks sold off as investors appeared to price in a deeper economic downturn than they had previously expected as they worried that Powell's call for additional stimulus would go unanswered.

While Powell pledged in a webcast to use the U.S. central bank's power as needed, he suggested that it might not be enough to avoid deep economic damage without more fiscal support.

"He's saying if you want to avoid a slow recovery and long-term economic damage you need a strong fiscal response, effectively placing that responsibility back over to governments instead of central banks," said Shawn Cruz, manager of trader strategy at TD Ameritrade in Jersey City, New Jersey.

And divisions among Republicans and Democrats appear to have dimmed the prospects for additional fiscal support from Congress, according to Jeff Kleintop, chief global investment strategist at Charles Schwab.

Market participants said they were relieved by Powell's indication that the Fed would not push interest rates below zero but some seemed taken aback by his downbeat view on the economy.

Schwab's Kleintop said Powell's tone was more pessimistic than in the recent past. "The market took away that maybe there's more bad news out there than they'd been pricing in," he said.

Powell's comments followed a sharp selloff in equities on Tuesday after a warning from leading U.S. infectious disease expert Anthony Fauci that the virus was not yet under control. Fauci's comments prompted concerns about how the economy would emerge from weeks of virus-related lockdowns.

The depth of Wednesday's decline was due to the combination of Fauci's comments and Powell's warning, TD Ameritrade's Cruz said: "The biggest implication is that some of the economic activity we've lost may never be recovered."

Another negative factor was a decision by an independent board overseeing billions in federal retirement dollars that it would indefinitely delay plans to invest in some Chinese companies.

"It adds to the tension ahead of an announcement Trump said could come this week on the Phase One (U.S.-China) trade deal," said Schwab's Kleintop.

Unofficially, the Dow Jones Industrial Average <.DJI> fell 519.97 points, or 2.19%, to 23,244.81, the S&P 500 <.SPX> lost 50.15 points, or 1.75%, to 2,819.97 and the Nasdaq Composite <.IXIC> dropped 139.38 points, or 1.55%, to 8,863.17.

Investor bets on a swift recovery had helped the three main U.S. stock indexes climb about 30% from their March lows.

But as officials around the world and in parts of the United States began easing lockdown rules with a view to restarting local economies fears of a second wave of COVID-19 infections have diminished those hopes.

Royal Caribbean Cruises Ltd shares tumbled after it launched a $3.3 billion bond offering, pledging 28 of its ships as collateral and forecast heavy losses for the first quarter.

(Additional reporting by Medha Singh and Ambar Warrick in Bengaluru; Editing by Sriraj Kalluvila, Shounak Dasgupta and Cynthia Osterman)

This story has not been edited by Firstpost staff and is generated by auto-feed.

Updated Date:

TAGS:

also read

France, Germany to agree to NATO role against Islamic State - sources
| Reuters
World

France, Germany to agree to NATO role against Islamic State - sources | Reuters

By Robin Emmott and John Irish | BRUSSELS/PARIS BRUSSELS/PARIS France and Germany will agree to a U.S. plan for NATO to take a bigger role in the fight against Islamic militants at a meeting with President Donald Trump on Thursday, but insist the move is purely symbolic, four senior European diplomats said.The decision to allow the North Atlantic Treaty Organization to join the coalition against Islamic State in Syria and Iraq follows weeks of pressure on the two allies, who are wary of NATO confronting Russia in Syria and of alienating Arab countries who see NATO as pushing a pro-Western agenda."NATO as an institution will join the coalition," said one senior diplomat involved in the discussions. "The question is whether this just a symbolic gesture to the United States

China's Xi says navy should become world class
| Reuters
World

China's Xi says navy should become world class | Reuters

BEIJING Chinese President Xi Jinping on Wednesday called for greater efforts to make the country's navy a world class one, strong in operations on, below and above the surface, as it steps up its ability to project power far from its shores.China's navy has taken an increasingly prominent role in recent months, with a rising star admiral taking command, its first aircraft carrier sailing around self-ruled Taiwan and a new aircraft carrier launched last month.With President Donald Trump promising a US shipbuilding spree and unnerving Beijing with his unpredictable approach on hot button issues including Taiwan and the South and East China Seas, China is pushing to narrow the gap with the U.S. Navy.Inspecting navy headquarters, Xi said the navy should "aim for the top ranks in the world", the Defence Ministry said in a statement about his visit."Building a strong and modern navy is an important mark of a top ranking global military," the ministry paraphrased Xi as saying.