- The Dow Jones closed more than 450 points lower following a feverish sell-off in the final hour of trading.
- Dr. Anthony Fauci poured cold water on stock market enthusiasm for a rapid return to normal from the lockdown.
- Donald Trump is pumping negative rates as deflation hits the U.S. and the deficit nears $2 trillion.
The Dow Jones Industrial Average staggered into the closing bell on Tuesday, ending the session more than 450 points lower after the aggressive sell-off.
The initial push lower came after the top U.S. infectious disease expert, Dr. Anthony Fauci, poured cold water on optimism about reopening the U.S. economy.
Adding to the concerning outlook, the specter of deflation is rearing its head as the U.S. budget deficit nears $2 trillion.
Dow Staggers Into Close in Feverish Tuesday Sell-Off
All three of the major U.S. stock market indices sold off aggressively in late afternoon trading.
- The Dow fell 457.21 points or 1.89% to 23,764.78.
- The S&P 500 plummeted 2.05% to 2,870.12.
- The Nasdaq slid 2.06% to 9,002.55.
U.S. stocks accelerated their declines after Dr. Anthony Fauci warned Congress about the lingering threat of a second wave of coronavirus.
He said that he’s worried about “little spikes turning into outbreaks” if lockdowns are rolled back too quickly.
Confirming the risks of easing restrictions, Governor Andrew Cuomo noted that the rate of deaths in New York has started to rise once again.
And then the Los Angeles Times reported that LA county’s stay-at-home order will “with all certainty” extend another three months.
This pessimism weighed on Dow bulls, who are hoping everything gets back to normal as soon as possible.
Elsewhere in markets, crude oil continued its impressive climb. WTI futures surged 6% and elicited praise from Donald Trump.
Still, the president’s claim that gasoline prices will remain at record lows and act as a stimulus for the economy is not supported by conventional economics.
Deflation Is the Most Imminent Threat to the U.S. Economy
Today saw CPI data released in the United States, and inflation was far more subdued than expected. Core data for April incurred a 0.4% contraction, the second straight negative print for price pressures.
The collapse in oil prices was a significant cause of this weakness, but it’s not the only one. And economist James Knightley at ING believes that there is little evidence that the massive Fed intervention will help inflation rise from its grave.
Of course, we hear the argument that the Federal Reserve “unlimited” quantitative easing is bound to eventually generate inflation, but we heard that after the Fed’s QE1, QE2 and QE3 programmes.
The key question is will the money find its way into the pockets of consumers, or is it going to stay in financial assets? Last time round QE certainly contributed to asset price inflation, yet CPI remained stubbornly low, and, at least at this stage, we see little reason for it to be different this time.
While inflation is typically considered the principal threat to the housing and stock markets, ING’s research suggests that deflation is the far more pressing concern in today’s climate.
That makes negative interest rates a real possibility, particularly if (when?) the Federal Reserve commits to fighting deflation at all costs.
As he confirmed in a tweet today, Donald Trump is certainly a fan of going below zero:
Meanwhile, federal revenues are plunging as spending mounts, putting the government’s budget deficit just a hair’s breadth under $2 trillion.
And yet somehow the USD remains remarkably strong.
Dow 30 Stocks: Apple Upgraded, Goldman Sachs Falls With Yields
It was another weak day in the Dow 30, as most members came under severe pressure.
Apple continued to anchor the index, trading sideways while holding close to 52-week highs. Wedbush helped AAPL shares defy the general malaise by giving the firm a price target hike stemming from optimism about the iPhone 12.
Bond yields tumbled in the risk-off climate, which drove both JPMorgan Chase and Goldman Sachs more than 3% lower. The benchmark 10-year Treasury note is currently returning just 0.668%.
The rally in crude oil did little to move Chevron and Exxon Mobil, who drifted into the red despite Trump’s optimism around the energy sector.
Walmart was the only Dow 30 stock to close the session in the green. WMT shares ticked 0.09% higher to $123.78.
This article was edited by Josiah Wilmoth.
Last modified: May 12, 2020 8:42 PM UTC