The Fed’s bleak economic forecast has scared investors and triggered a price slide. In addition, the fear of a second corona wave has flared up again.
Guess that V shape recovery is lookin a little more like a W shaped recovery— Anthony Russell (@DotNetRussell) June 11, 2020
Summer is approaching, but the markets already seem to be suffering from overheating. A few days before the hottest phase of the year began, the stock markets rushed deep into the basement. The Dow Jones Industrial Average (INDEXDJX: DJI) is down by almost 7%s – and closed at just 25,128 points (-1,861.82) . The biggest drop in price since the corona crash in mid-March threatens.
Dow is down from 27k to 25k in less than a day, looks like a big W ic coming!— Ali Esswie (@ali30_12) June 11, 2020
A pessimistic economic outlook from the U.S. Federal Reserve spoiled the mood of investors. Fed head Jerome Powell warned that the corona crisis would put a heavy strain on the economy, the labor market and inflation. There are significant economic risks. “This is the biggest economic shock we can remember,” Fed chief Jerome Powell said on Wednesday night. The Fed is doing everything it can to bring people back into wages and bread. “22.24 million people – somehow we have to get them to work as a country. They didn’t do anything wrong. It was a natural disaster.” The central bank expects the economy to shrink by 6.5 percent this year, followed by growth of 5.0 percent in the coming year. Interest rates would probably remain on the zero line for years, signaled the monetary authorities.
“The Fed’s bleak economic outlook is bringing investors back to earth,” said Timo Emden, an analyst at Emden Research. So far, the market had been assuming a very rapid economic recovery from the corona crisis, a steep V-shaped recovery, but the Fed had now propagated a U-shaped recovery, the Mussler letter on Thursday said. In my eyes it is more of W-shaped recovery.
In addition, the fear of a second wave of corona infections flared up again on the markets. The virus appears to be spreading more rapidly in the United States. The number of coronavirus infections has recently risen again in some states. According to Reuters calculations, New Mexico, Utah and Arizona recorded 40 percent more new infections last week, and Florida and Arkansas also developed into hotspots.