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U.S. stock-index futures on Thursday tumbled sharply as investors reacted to signs of an emergent pickup in cases of coronavirus and digested the Federal Reserve’s downbeat outlook of the domestic economy, even as the central bank held rates steady, as expected on Wednesday, and projected interest rates would be held near zero levels until at least 2022.
The Fed’s estimates that the economy will contract by anywhere between 4% and 10% in 2020.
How are benchmarks performing?
Futures for the Dow Jones Industrial Average YM00, -1.95% YMM20, -1.95% were off 555 points, or 2.1%, at 26,409, those for the S&P 500 index ES00, -1.62% ESM20, -1.62% were declining 54.25 points, or 1.7%, at 3,131.75, while Nasdaq-100 futures NQ00, -1.29% NQM20, -1.29% gave up 132 points, or 1.3%, at 9.955.25.
On Wednesday, the Dow DJIA, -1.03% fell 282.31 points, or 1%, to end at 26,989.99. The S&P 500 SPX, -0.53% shed 17.04 points, or 0.5%, finishing at 3,190.14. The Nasdaq Composite COMP, +0.66% climbed 66.59 points, or 0.7%, to close at a record 10,020.35 high.
What drove the market?
The Fed’s updated policy statement and projections indicate that it expects a 6.5% contraction by the end of the year on a year-over-year basis, with the unemployment rate ending at 9.3%, well above the Fed’s estimate of the long-run rate forecast of 4.1%.
A RECAP OF THE FED: Fed provides update on economic outlook and policy thinking
The market will gain more information about the state of the economy when the weekly jobless claims report is released at 8:30 a.m. Eastern and a reading of inflation known as the producer-price index at the same time. Expectations are for 1.565 million people seeking unemployment benefits for the week, according to average estimates of economists surveyed by Econoday.
Although new jobless claims have been falling since March, more than 2.2 million applications for unemployment compensation were filed in the last week of May through state and federal relief programs. That is almost as many as the 2.5 million jobs supposedly regained by the economy in the entire month, reports MarketWatch’s Jeff Bartash.
Powell said Wednesday during his news conference after the Fed decision that he is worried that the number of people who will find they have no job to return to could be “well into the millions.”
Market participants also have expressed concerns that cases of COVID-19 derived from the novel strain of coronavirus are on the uptick. Bloomberg News reported on Wednesday that data from Johns Hopkins University showed an uptick in cases in Florida, Texas and California, raising some concerns about a possible second wave of the pandemic even as the nation’s overall case saw the smallest percentage increase since March.
The global case tally for the coronavirus climbed to 7.39 million on Thursday, according to data aggregated by Johns Hopkins University. The death toll rose to 417,022. More than 3.5 million people have recovered. The U.S. has the highest case toll in the world at 2 million and the highest death toll at 112,924.
“Up until yesterday financial markets didn’t appear overly concerned about the prospect of a second wave,” said Michael Hewson, chief market analyst at CMC Markets UK, in a Thursday research note. However, he noted that the “prospects, appear to have concentrated minds in the wake of recent gains, and sending the usual suspects of travel, as well as oil and gas stocks sharply lower”
Naeem Aslam, chief market analyst at AvaTrade, in a Thursday research note said that “lack of Fed’s confidence in the US economic recovery is also impacting the S&P500 futures and the risk-on sentiment.”
Looking ahead, investors also will watch an update on the Fed’s balance sheet, which hit $7.21 trillion last week, and the money supply at 4:30 p.m. Eastern.
How are other assets faring?
Oil prices traded lower on Thursday, as the Fed promised to keep rates near zero. West Texas Intermediate CLN20, -3.66% lost $1.26 cents, or 3.2%, trading at $38.34 a barrel on the New York Mercantile Exchange.
The greenback picked up 0.2% against its major rivals, as gauged by the ICE U.S. Dollar index DXY, +0.19%.
In precious metals, August gold GCM20, +1.32% on Comex gained $18.20, or 1.1%, at $1,738.90 an ounce.
The 10-year Treasury note yield TMUBMUSD10Y, 0.709% fell 4.8 basis points to 0.70%. Bond prices move in the opposite direction of yields.
In global equities, the Stoxx Europe 600 index SXXP, -2.15% closed down 0.4%, while the FTSE 100 index UKX, -1.98% shed 0.1%.
In Asia, Japan’s Nikkei NIK, -2.82% tumbled 2.2% higher, the FTSE 100 index UKX, -1.98% declined 1.1%. China CSI 300 000300, -1.08% finished up 1.1% lower and Hong Kong’s Hang Seng Index HSI, -2.27% closed off 2.3%. South Korea’s Kospi index 180721, -0.86% retreated 0.9%.
