U.S. stocks marked their worst day of the year on Wednesday, as investors worried about new coronavirus variants, slow vaccine deployment, and obstacles to President Joe Biden’s promised stimulus package of 1, $ 9 billion.
The S&P 500 index fell 2.6%, its biggest drop since October, while the high tech Nasdaq Composite also fell 2.6%.
Investors got out of risky assets despite the assurances from Federal Reserve Chairman Jay Powell that the US central bank would keep its super-easy monetary policy in place for the foreseeable future.
Mr Powell reiterated that the Fed will signal well in advance its intention to adjust its $ 120 billion per month asset purchase program – a message also delivered by Vice President Richard Clarida earlier this month -this.
“Lowering expectations is premature,” said Nic Hoogewijs, bond fund manager at Lombard Odier. “These recent communications from the Fed have shown that tighter financial conditions are not what they want to see.”
Instead, fund managers called for safe-haven securities on Wednesday, including US government debt. The rally sent 10-year Treasury yields briefly below 1% for the first time since the Democratic Party took control of the Senate. It then stood at 1.01 percent.
The yield on the 10-year note broke that key percentage threshold on January 6, as the Senate second-round election gave Mr Biden party control of both houses of Congress – prompting investors to assess the prospects for ” a more generous budget support program. this would spill over into inflation, lowering the value of bonds.
But recent resistance by Republican lawmakers to Mr Biden’s stimulus package has since raised fears that the potential size of upcoming aid is disappointing – upsetting reflationary bets.
In Europe, the benchmark Stoxx 600 closed down 1.2% and the UK’s FTSE 100 fell 1.3% as the mood darkened as Britain put in quarantine arrivals at its airports to protect against variants of the coronavirus. Meanwhile, news emerged that the supply Covid-19 vaccines were exhausted in the Spanish region of Madrid.
The dollar, often viewed as a safe haven asset, also strengthened against a basket of peers, climbing 0.5%.
This month, Powell rebutted speculation that the Fed would limit its asset purchase program. Mr Clarida also said that the US central bank was unlikely to change interest rates until inflation stayed at its 2% target “for a year”.
Mr Powell reiterated that message on Wednesday, pledging to communicate the central bank’s plans well in advance of any policy adjustment.