By Yasin Ebrahim
Investing.com – Wall Street extended losses on Thursday, as the Federal Reserve's sobering outlook on the economy and growing Covid-19 infections in U.S. served as a gut check for investors betting on a "V" shaped economic recovery.
A climb in coronavirus infections has stoked fears the pace of reopening the economy in some states could come under threat just a day after the Fed warned the road to economic recovery is paved with uncertainty.
The central bank projections, including expectations for a 6.5% drop in GDP, highlights "the Fed’s ongoing concerns regarding the state of the U.S. economy and the likely lingering impact of the economic shutdown," Stifel said in a note.
Dow Jones Industrial Average fell 5.22%, or 1409 points, the S&P 500 slipped 4.29%, while the Nasdaq Composite tumbled 3.61%.
Energy stocks, travel, energy, and bank stocks, which together have been pushed higher on bullish bets on a rebound in economic growth in the second half of the year, bore the brunt of selling, sending the broader market sharply lower.
Citigroup (NYSE:C), Wells Fargo (NYSE:WFC), and JPMorgan (NYSE:JPM) plunged more than 6%, pressured by falling Treasury yields and fresh fears that a long road to economic recovery could force banks to sock away more cash to offset loan defaults.
American Airlines (NASDAQ:AAL), United Airlines (NASDAQ:UAL), Delta Air Lines (NYSE:DAL), Carnival (NYSE:CCL), and Norwegian Cruise (NYSE:NCLH) were among the biggest decliners in travel.
Losses in energy, meanwhile, were exacerbated by a slump in oil prices as concerns about demand persisted a day after the U.S. reported that weekly crude supplies swelled to a record last week.
Technology, which has held firm in recent days, also came under pressure, paced by a decline in FANG stocks and chipmakers.
The Philadelphia Semiconductor Index slumped 4%, led by declines in Nvidia (NASDAQ:NVDA), Advanced Micro Devices (NASDAQ:AMD) and Micron Technology Inc (NASDAQ:MU).
On the economic front, the labor market continues to steady, with initial jobless claims falling to 1.5 million in the week ended June 6, less than the 1.6 million expected.
"On the heels of last week’s better-than-expected May employment report, this morning’s continued decline in the pace of weekly claims reinforces the notion the U.S. labor market is on the mend – or at least noticeably improving from more massive weakness reported earlier in Q2," Stifel added.