Stocks Slump on Powell Remarks, U.S.-China Worries: Markets Wrap

(Bloomberg) — U.S. stocks slumped to a three-week low after Jerome Powell warned economic risks from the virus are significant and tensions with China flared. Treasuries and the dollar advanced.

The S&P 500 fell after the Federal Reserve chairman said the threat of a lasting downturn can deepen without additional government spending. Equities extended losses after a federal savings plan delayed moving funds into an index with Chinese stocks, adding to tensions stoked by President Donald Trump.

Read: Tepper Says Stock Market Most Overvalued Ever Outside 1999

The stock weakness has the S&P 500 headed for its worst week since March 20, the session before a furious 30% rally started. Equities tumbled Tuesday after health official Anthony Fauci warned the pandemic could worsen if states open too soon, and some Fed chiefs expressed concern the recession will be long. Famed investor Stanley Druckenmiller also hit sentiment, saying equities are too high. David Tepper joined hate chorus Wednesday, saying only 1999 was more overvalued than the current market.

“It continues the theme from yesterday that the recovery will be slower and more uneven than what markets may currently be discounting,” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute. “With the nice run off the lows, it makes sense to take some profits.”

Republicans universally rejected a $3 trillion stimulus measure drafted by House Democrats to bolster the U.S. economy, but the draft plan has the seeds for an eventual, smaller compromise. With Speaker Nancy Pelosi pushing the House toward a Friday vote on the Democratic package, a Senate Republican aide said that Majority Leader Mitch McConnell doesn’t plan to move on any GOP alternative until June at the earliest.

Traders of fed funds futures pushed bets on a negative policy rate into next year. Powell acknowledged the speculation, but said such a move was not being considered — though he stopped short of completely ruling the tool out as an option in the future.

“While Powell’s remarks paint a grim but realistic picture of the deep scarring of the virus on the U.S. economy, Fed watchers might find relief in the fact that Powell remains committed to deploy his remaining arsenal to the fullest extent as we continue to ride out the pandemic,” said Mike Loewengart, managing director of investment strategy at E*Trade Financial. “This means their toolkit primarily relies on additional fiscal stimulus.”

Here are some key events coming up:

U.S. weekly jobless claims data is due Thursday.China on Friday releases industrial production and retail sales data for April.

These are some of the main moves in markets:

Stocks

The S&P 500 declined 2.3% as of 2:05 p.m. New York time.The Stoxx Europe 600 Index fell 1.9%.The MSCI Asia Pacific Index was little changed.

Currencies

The Bloomberg Dollar Spot Index increased 0.3%.The euro decreased 0.3% to $1.0817.The Japanese yen strengthened 0.1% to 107 per dollar.

Bonds

The yield on 10-year Treasuries decreased one basis point to 0.65%.Germany’s 10-year yield decreased three basis points to -0.53%.Britain’s 10-year yield dipped four basis points to 0.208%.

Commodities

The Bloomberg Commodity Index sank 1.6%.West Texas Intermediate crude decreased 3.1% to $24.99 a barrel.Gold advanced 0.4% to $1,714.40 an ounce.

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