CNN Business/Anneken Tappe
Stocks tumble after the Fed says the recovery will take time
The Dow and the broader US stock market took a dive on Thursday, opening sharply in the red after the Federal Reserve said the path to recovery would be very long.
Stocks finished mixed following the central bank’s monetary policy update on Wednesday, and sentiment clearly hasn’t improved over night.
The Dow (INDU) opened down 1.1%, or more than 300 points lower, while the broader S&P 500 (SPX) fell 1.5% at the opening bell. The tech-heavy Nasdaq Composite (COMP) tumbled 2.2%.
The Fed committed to lower interest rates for longer and to continue asset purchases to help the US economy recover from the pandemic shock. It reiterated that the speed of the economy depended on the path of the virus.
FX Street/Arkadiusz Sieroń
Fed will not hike rates for years, gold should like it
A survey of Fed officials showed the group expects rates to remain at or near zero through 2023. In theory that’s good for stocks, because it means that companies can borrow at cheaper interest rates. But it also means that the economic recovery will be slower than many may have hoped.
Powell also reiterated that there likely needed to be more fiscal stimulus.
While the labor market has improved significantly since the spring, “It’s a long way from maximum employment,” Fed Chairman Jerome Powell told reporters Wednesday. As of the August jobs report, the country was still down 11.5 million jobs from February.
Business Insider/Kari McMahon
Blackstone says stock investors may face a ‘lost decade’ in equity appreciation
Investors may not see the kind of returns the stock market has yielded this year for another decade, as companies struggle to grow their earnings in an economy that is in recovery after the coronavirus pandemic, private-equity firm Blackstone’s executive vice chairman, Tony James, told CNBC’s Squawk Box Asia on Wednesday.
James said that the healthy level of existing capital returns, plus the “fear-of-missing-out” buying frenzy that has driven US indices to record highs this year, has also created a stock market that “feels very fully valued.”
As interest rates eventually rise, in line with an improving economic backdrop, companies may face other headwinds in the long-term, and this could lead to disappointing stock returns for investors.
“I think this could be a lost decade in terms of equity appreciation,” James said.
At the same time, US interest rates remain near zero, as the Federal Reserve leverages monetary policy to help manage the fallout of the pandemic that stripped over 30% off total economic output in the second quarter of this year and has rendered millions jobless.