By Yasin Ebrahim
Investing.com – Stocks on Walll Street tumbled Wednesday as Federal Reserve Chairman Jay Powell 's stark warning about the state of coronavirus-ravaged economy prompted investors to pull their bullish bets.
The Dow Jones Industrial Average fell 2.17%, or 516 points, the S&P 500 slumped 1.75%, while the Nasdaq Composite lost 1.55%.
Underscoring the severe impact of the pandemic, Powell said the scope and speed of the economic downturn are "significantly worse" than any recession since World War II and warned the economic outlook was highly uncertain.
"We are seeing a severe decline in economic activity and in employment, and already the job gains of the past decade have been erased," Powell said in prepared remarks. "This reversal of economic fortune has caused a level of pain that is hard to capture in words, as lives are upended amid great uncertainty about the future."
Against rising pressure to cut rates to below zero from President Donald Trump, Powell all but shut the door on negative rates, which he said had yet to prove an effective policy tool.
The sobering update from Powell comes as investors continue to assess efforts to reopen the economy against the risk that a rushed reopening could trigger a second wave of infections, sending the country back into a nationwide lockdown.
Top diseases expert Dr. Anthony Fauci warned this week that the U.S. could face more "suffering and death" if states start to reopen too quickly.
Downside in the broader market was led by energy, paced by a 1.9% decline in oil prices despite an unexpected draw in weekly U.S. inventories.
Financials, meanwhile, continued their weak start to the week, led by banking stocks as the United States 10-year yield slipped on weaker economic data and bearish remarks from Powell.
JPMorgan Chase (NYSE:JPM), Goldman Sachs (NYSE:GS) and Citigroup (NYSE:C) were down more than 3%.
The Labor Department said on Wednesday, its producer price index for final demand fell 1.3% last month, wider than economists' forecasts for a 0.5% decline.
Technology stocks, meanwhile, also contributed to the selloff, led by Alphabet (NASDAQ:GOOGL) and Facebook (NASDAQ:FB), but Amazon (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX) proved exceptions to the selloff.
The day of red on Wall Street comes as big-name fund managers continue to debate whether the market has run up too fast.
David Tepper, founder of Appaloosa Management, told CNBC that the market is "pretty full," while Bill Miller, founder of Miller Value Partners said the broader market is trading around levels matching an average over the last five years.