The Dow Jones fell 350 points, as Jerome Powell made it clear that most economic forecasts assume an additional round of fiscal stimulus that has yet to be passed.
The Dow Jones fell over 300 points Wednesday, as Federal Reserve speakers made it clear that the stock market rally is unsustainable unless Congress provides additional fiscal stimulus.
All three major U.S. stock market indices came under pressure, as the Nasdaq dropped 2.2%, and the S&P 500 lost 1.6%. This left the Dow Jones the strongest of the three, but it too fell 1.3%.
It was a busy day of economic data, as investors monitored a slew of U.S. PMI releases. While U.S. manufacturing managed to slightly beat estimates, the all-important services PMI was worse than last month (54.6), signaling a slowdown in consumer demand.
Crude oil inventories also demonstrated a slightly smaller draw versus expectations.
The data provided the backdrop to another round of cautious testimony from Federal Reserve Chair Jerome Powel. In new congressional testimony, Powell expressed concerns about a lack of fiscal stimulus. He also made the following statement about current economic forecasts:
I would say many, most, assume some fiscal action. Fiscal action underlies many, many current forecasts
The implication here is that central-bank intervention has done all it can, and lofty market valuations are partly based on Congress stepping up with more cash.
A clear and coordinated effort from the U.S. central bank to pressure politicians into action is underway. Fed Vice-Chair Richard Clarida also told Bloomberg that additional fiscal support is needed. Watch the video below:
While there is an appetite from House Democrats for another round of stimulus checks, Wall Street is yearning for something more substantial (like another round of multi-trillion-dollar stimulus).
Congress has provided some relief to investors in the form of a new stopgap spending measure that will keep the federal government funded through early December.
On a generally weak day in the Dow 30, things could have been considerably worse, were it not for the blow-out performance of Nike. The sports apparel maker saw its stock soar 9% after a tremendous earnings report.
There was other good news as Johnson & Johnson’s vaccine progress helped lift JNJ values.
Most of the other Dow members came under pressure, as Apple and Microsoft tumbled. The tech sector was generally weak, as Salesforce.com fell 3%.
Last modified: September 23, 2020 6:42 PM