Stock markets slumped on Thursday in their worst sell-off since markets crashed in March, while safe-haven assets like gold rose after the U.S. central bank cast doubt on hopes for a V-shaped recovery from the coronavirus pandemic.
The Dow Jones Industrial Average was down by more than 1,600 points or almost 7 per cent late in the trading day as the number of new coronavirus cases rose in the United States after five weeks of declines.
The U.S. central bank on Wednesday kept its benchmark rate at its current record low rate, and warned the recovery from the coronavirus will be slow.
“These forecasts reminded investors that a lot of economic damage has already been done by the coronavirus lockdowns and that while central banks and governments are providing support, the path to recovery remains uncertain,” said Colin Cieszynski, chief market strategist at SIA Wealth Management in Toronto.
In Toronto, the S&P/TSX Composite Index was down about 700 points or almost five per cent.
European stock markets were all down by about four per cent.
Just about every sector was in the red with financial, energy and material sectors, that track economic growth, posting the biggest declines.
The price of oil lost about 10 per cent, down $3.26 to settle at $36.34.
Wall Street’s fear gauge, the CBOE volatility index, rose to 32 points, its highest level since May 15.
The easing of lockdowns and a massive stimulus program to help the economy bounce back quickly to pre-pandemic levels have been pivotal in helping the three main indexes recover about 40 per cent from a deep, virus-induced selloff.
“We’re actually going to have a W-shaped recovery,” said Chad Oviatt, director of investment management for Huntington Private Bank in Columbus, Ohio. “Markets are dealing with the fact that we now have an elongated recovery period.”
“The quick, V-shaped recovery market bulls have been banking on is far from a done deal, that there may be significant bumps and setbacks along the way and that any economic rebound we do get could be uneven,” Cieszynski said.
The S&P 500 and the Dow Jones indexes ended lower on Wednesday after Fed Chair Jerome Powell acknowledged it could take years for the millions of people laid off due to COVID-19 to get back to work, even as he reiterated his promise to support the virus-hit economy.
A Labour Department report showed about 1.54 million people applied for state unemployment benefits for the week ended June 6, roughly in line with estimates.
Shares of banks, which tend to benefit in a higher rate environment, slipped 6.6 per cent, extending losses after Fed policymakers saw key overnight interest rates remaining near zero through at least 2022.
Shares of airlines and cruise operators were some of the biggest percentage losers on the S&P 500.
The S&P 1500 airlines index tumbled 9.2 per cent, while Norwegian Cruise Line Holdings Ltd and Royal Caribbean Cruises Ltd slumped 13.6 per cent and 8.2 per cent, respectively.
