Wall Street tumbles amid renewed virus fears, Fed’s bleak forecast

New York, June 12 (IANS): Wall Street suffered its worst day in nearly three months, with the Dow plunging more than 1,800 points amid a broad market sell-off.

On Thursday, the 30-stock index shed 1,861.82 points, or 6.9 per cent, to 25,128.17. The S&P 500 sank 188.04 points, or 5.89 per cent, to 3,002.1. The Nasdaq decreased 527.62 points, or 5.27 per cent, to 9,492.73. The major averages posted their worst day since mid-March, Xinhua news agency reported.

All the 11 primary S&P 500 sectors finished sharply lower, with energy and financials down 9.45 per cent and 8.18 per cent, respectively, leading the losses.

The Cboe Volatility Index, widely considered as the best fear gauge in the stock market, spiked nearly 48 per cent to 40.79.

Concerns over rising coronavirus infections in some US states and a sober assessment of economic recovery prospects from the Federal Reserve weighed on equity markets, Lucy Qiu, a strategist at UBS Global Wealth Management, told Xinhua on Thursday.

A spike in new coronavirus cases across US states, including Texas and California, triggered fears of a second wave of infections as the nation tries to reopen after lockdowns.

More than 2 million confirmed Covid-19 cases have been reported in the United States, with over 113,000 deaths as of Thursday afternoon, according to the Center for Systems Science and Engineering at Johns Hopkins University.

Meanwhile, investors’ expectation of a swift economic recovery from the pandemic was dimmed by gloomy views from the US central bank, which on Wednesday kept its benchmark interest rate unchanged at the record-low level of near zero and projected interest rates to remain at the current level through at least 2022.

“The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term,” the Federal Open Market Committee, the Fed’s policy-making body, said in a statement after concluding a two-day meeting.

In a separate statement released on the same day, the Fed projected that the US economy will shrink by 6.5 per cent in 2020, followed by a 5 per cent gain next year.

Fed Chairman Jerome Powell said Wednesday afternoon that the economic projections were made with the general expectation that the economic recovery will begin in the second half of the year and last over the next couple of years.

“Powell highlighted the extent of economic uncertainty and suggested that the economy might not fully recover until people believe the risks form Covid-19 have disappeared (implying not until a vaccine is available),” Qiu noted, adding “today’s risk-off move highlights the importance of a selective approach to stocks after the recent sharp rally.”

Despite Thursday’s plunge, US equities traded mostly on an upbeat note in recent days. The Nasdaq rallied to a record high on Wednesday, closing above the 10,000 mark for the first time. The S&P 500 and the Dow are both still up more than 37 per cent from their coronavirus intraday lows.