Stocks Slide 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 briefly fell below 2,800 -- a level that has provided support in the past month -- after the Federal Reserve chairman said the threat of a lasting downturn can deepen without additional government spending. Equities also dropped after a federal savings plan delayed moving funds into an index with Chinese stocks, adding to tensions stoked by President Donald Trump. After the close of regular trading, Cisco Systems Inc. gave a sales forecast that beat Wall Street expectations, sending shares higher.

Read: Cisco Quarterly Revenue Forecast Beats Wall Street Estimates

The S&P 500 headed for its worst week since March 20, the session before a furious 30% rally started. Goldman Sachs Group Inc. economists estimate that the unemployment rate will peak at 25%, up from a previous forecast of 15%. Famed investor Stanley Druckenmiller said equities are too high, while David Tepper called the stock market the most overvalued ever outside of the 1999 bubble.

“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.”

Read: Tepper Says Stock Market Most Overvalued Ever Outside 1999

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.

“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.”

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.

Elsewhere, oil fell as investors weighed stockpile declines against a darker outlook for demand and economic recovery.

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 decreased about 1.7% as of 4 p.m. New York time.
• The Stoxx Europe 600 Index declined 1.9%.
• The MSCI Asia Pacific Index advanced 0.1%.

Currencies

• The Bloomberg Dollar Spot Index climbed 0.2%.
• The euro fell 0.3% to $1.0815, the largest fall in a week.
• The Japanese yen strengthened 0.1% to 107.04 per dollar.

Bonds

• The yield on 10-year Treasuries decreased two basis points 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 dipped 1.5%.
• West Texas Intermediate crude decreased 0.9% to $25.55 a barrel.
• Gold advanced 0.9% to $1,722 an ounce.

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