Stocks fell on Wednesday as investors grappled with downbeat remarks from the top-ranking Federal Reserve official amid jitters about reopening the economy along with worries over the market’s valuation.
The major averages fell to their session lows around midday after billionaire investor David Tepper called this market the second-most overvalued he’s ever seen.
“The market is pretty high and the Fed has put a lot of money in here,” Tepper, founder of Appaloosa Management, told CNBC’s “Halftime Report.” “There’s been different misallocation of capital in the markets. Certainly you are seeing pockets of that now in the stock market. The market is by anybody’s standard pretty full.”
The Dow Jones Industrial Average dropped 460 points, or 1.95%. The S&P 500 traded 1.8% lower while the Nasdaq Composite fell 1.9%.
Fed Chairman Jerome Powell said in prepared remarks for a webcast event with the Peterson Institute for International Economics that that more needs to be done to sustain the economy.
“While the economic response has been both timely and appropriately large, it may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risks,” he said. Powell added, however, the economy should see a substantial recovery once the coronavirus is under control.
Powell’s remarks came after the Labor Department reported last week that a record 20.5 million jobs were lost in April. They also come as several states begin reopening their economies, raising concern among experts about the potential of a second wave of coronavirus cases.
Washington D.C. extended its stay-at-home orders until June 8. Los Angeles County’s public health director said Tuesday the region’s stay-at-home order will “with all certainty” last through July. While several southern states have already started to let nonessential businesses resume operations.
“Everything is dependent on the next several months and how successful businesses can re-open,” Nick Raich, CEO of The Earnings Scout, wrote in a note. “All the stimulus in the world will not offset businesses closing their doors for an extended time.”
Raytheon Technologies and American Express were the worst-performing stocks in the Dow, falling at least 5% each. Energy and financials led the S&P 500 lower by falling 4.6% and 2.6%, respectively. Cruise line stocks Carnival, Royal Caribbean and Norwegian Cruise Line all fell at least 7%. Those stocks are among those that would benefit from the economy reopening.
Wall Street was coming off of sharp losses from the previous session, as jitters about the economic reopening sent the major averages tumbling in the final hour of trading.
“You have a market just waiting to see how the economy opens,” said Quincy Krosby, Prudential chief market strategist.. “You’ve got the S&P 500 at an important technical level, which is 3,000, and it needs a catalyst to climb above that. One of the main catalysts will be if the economy can open up without an increase in cases.”
Dr. Anthony Fauci said Tuesday that a vaccine will be essential in stopping the coronavirus spread, but warned it will be a while before a usable one is available. Fauci added the U.S. could face more “suffering and death” if states start to reopen too quickly.
“Even though market participants know Dr. Fauci’s stand on opening the economy too soon, to hear him testify also helped to underpin the view that if you do move too quickly you run the risk of causing cases to rise,” Krosby said.
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Stocks fell on Wednesday as investors pored through downbeat remarks from the top-ranking Federal Reserve official.