Wall Street dives after Fauci, Fed set sombre tone

Traders also assessed comments from central bank officials, who cited the risk of potential of massive bankruptcies that could create a lasting scar. The Fed could curtail Wall Street banks’ ability to pay dividends by cranking up the amount of capital they need to maintain due to the coronavirus crisis, Governor Randal Quarles said.

“You will get business failures on a grand scale and you will be taking risks that you would go into depression” if shutdowns persist, Federal Reserve Bank of St. Louis President James Bullard said in a video speech from that city. Minneapolis Fed President Neel Kashkari warned of a “gradual, muted recovery” from the outbreak, while Dallas Fed President Robert Kaplan said the economy will need more fiscal stimulus if the jobless rate continues to rise.

The disastrous fallout of business closures and stay-at-home orders caused an unprecedented 20.5 million job losses in April, tripling the unemployment rate to 14.7 per cent, the highest since the Great Depression era of the 1930s. A key measure of U.S. consumer prices declined last month by the most on record. A sustained trend of declining prices would spur worries about deflation, exacerbating concern that the recovery from the deep economic downturn will be very slow.

Buyers of U.S. stocks after the economy shrank in the first quarter have history on their side, according to Keith Lerner, chief market strategist at SunTrust Private Wealth Management. Gross domestic product contracted at an annual rate of 4.8 per cent, marking the 13th quarterly decline of more than 4 per cent since 1949, according to data compiled by Bloomberg. After each previous instance, the S&P 500 gained more than 10 per cent during the next 12 months.

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