US stocks tumble as Fed chief warns downturn may be long

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Federal Reserve Board chairman Jerome Powell highlighted the risks facing the US economy. PHOTO: REUTERS

NEW YORK (AFP) - Wall Street stocks slumped for a second straight session on Wednesday (May 13) after the Federal Reserve chief highlighted the risks facing the US economy after coronavirus shutdowns.

The Dow Jones Industrial Average sank 2.2 per cent, or more than 500 points, to 23,247.97.

The broad-based S&P 500 fell 1.8 per cent to 2,820.00, while the tech-rich Nasdaq Composite Index dropped 1.6 per cent to 8,863.17.

Fed Chair Jerome Powell warned the economic outlook was "highly uncertain" and said Washington may need to spend beyond the nearly $3 trillion already approved by Congress.

"Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery," Powell said.

Analysts blamed the remarks for sucking momentum out of US markets, which have rallied with few pullbacks since early April on anticipation of a speedy economic recovery.

"The market is taking a cue that maybe there was a bit of overexcitement about how quickly the economy can get back on track," said JJ Kinahan, chief market strategist at TD Ameritrade.

"What it's really gonna take for a new rally is businesses getting back to work," he added.

Powell's comments came one day after top US scientist Anthony Fauci cautioned that ending the coronavirus shutdowns and reopening the economy too quickly would compromise public health.

All 11 sectors of the S&P 500 fell, but banks were especially hard hit.

Powell said the Fed has no plans to lower interest rates into negative territory, but bond yields remained under pressure. Bank of America, JPMorgan Chase and Citigroup all lost more than three percent.

Other areas of weakness included oil companies, with Exxon Mobil shedding 5 per cent, as well as the aviation sector, where American Airlines plunged 5.6 per cent.

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