Stocks Whipsaw, Dollar Drops on Powell’s Dour View: Markets Wrap

(Bloomberg) -- U.S. stocks whipsawed, the dollar fell and Treasuries rallied as investors assessed the Federal Reserve’s views on the economy.

In a very volatile session, the S&P 500 closed lower as Chairman Jerome Powell suggested the pandemic could inflict longer-lasting damage on the economy even as the Fed signaled it would keep rates near zero possibly for years to come. The central bank also said it will at least maintain the current rate of bond purchases. Treasury 10-year yields sank to as low as 0.72%, while the dollar extended its June slide to 2.5%. The Nasdaq 100 climbed to a record high as Tesla Inc. topped $1,000.

Read: Fed Sees Zero Rates Through 2022, Commits to Keep Buying Bonds

U.S. equities have rallied more than 40% from their March lows as central-bank asset purchases and unprecedented stimulus sparked demand for risk assets. Earlier Wednesday, Treasury Secretary Steve Mnuchin said that the U.S. “definitely” needs additional fiscal stimulus.

“It seems like profit-taking is underway after the Fed didn’t deliver any new measures,” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute. “It’s not as easy to take risk at this point.”

Stocks may be the ultimate beneficiary of trillions of dollars in economic stimulus from the Fed, according to Savita Subramanian, Bank of America Corp.’s chief U.S. equity strategist. “Liquidity looking for a home” is bolstering the FANG stocks -- Facebook Inc., Amazon.com Inc., Netflix Inc. and Google’s owner, Alphabet Inc. -- along with their technology-driven peers, she wrote in a report this week.

The danger, though, is that any complication in the economic recovery could see market gains swiftly reverse -- at a time when there’s less room for additional support. The pandemic is splintering the world economy, and policy makers can’t risk a premature withdrawal of lifelines to businesses and the most vulnerable people, the Organisation for Economic Co-operation and Development warned.

What to watch this week:

• Euro-area finance ministers meet Thursday to discuss the EU’s recovery package and Eurogroup presidency succession.

These are some of the main moves in markets:

Stocks

• The S&P 500 dipped 0.5% as of 4 p.m. New York time.
• The Stoxx Europe 600 Index fell 0.4%.
• The MSCI Asia Pacific Index climbed 0.5%.

Currencies

• The Bloomberg Dollar Spot Index fell 0.6%.
• The euro advanced 0.3% to $1.1371.
• The Japanese yen appreciated 0.6% to 107.15 per dollar.

Bonds

• The yield on 10-year Treasuries declined nine basis points to 0.73%.
• Germany’s 10-year yield fell two basis points to -0.33%.
• Britain’s 10-year yield dipped seven basis points to 0.267%.

Commodities

• The Bloomberg Commodity Index increased 0.4%.
• West Texas Intermediate crude advanced 0.1% to $38.99 a barrel.
• Gold gained 1.4% to $1,745.20 an ounce.

©2020 Bloomberg L.P.