Stocks swooned on Wednesday after Federal Reserve Chairman Jerome Powell said the novel coronavirus has created lingering uncertainty for the U.S. economy while scoffing at the notion that negative interest rates could help the world’s largest economy regain its footing.
- The S&P 500 slid 1.75%.
- The Dow Jones Industrial Average tumbled 2.17%
- The Nasdaq Composite declined 1.55%
- Amid looming uncertainty about the pace of economic reopenings across the U.S. and how long it could take for the travel and leisure industry to get back to normal, American Express (NYSE:AXP) was the Dow’s worst performer, shedding 6.62%.
Not bowing to pressure from the White House, Powell is rebuffing the idea of negative interest rates, though some market observers say the idea could work if employed for just a year or two. The problem is that markets and investors could quickly get used to negative rates, a scenario that would be highly risky for already-lagging financial services companies, the third-largest sector weight in the S&P 500.
Look at it this way: the aforementioned AXP, JPMorgan Chase (NYSE:JPM) and Travelers (NYSE:TRV) are already Dow laggards this year with rates near zero. It’s likely those stocks would perform even more poorly in a negative rate environment.
However, Powell’s comments weren’t the only drag on stocks today, as 28 of 30 Dow members were lower in late trading. The two that were higher — Merck (NYSE:MRK) and Walmart (NYSE:WMT) — barely scraped a combined gain of 1%.
Today was the exact kind of day one would expect oil stocks to be under pressure. Fed talk and economic uncertainty weren’t only issues behind Exxon Mobil (NYSE:XOM) ranking as the second-worst Dow performer behind AXP.
Legal & General Investment Management (LGIM), a UK-based asset manager that owns $1 billion worth of Exxon stock, is prodding the oil giant to get its act together when it comes to climate change, and plans to vote accordingly on Exxon board elections.
“In addition to voting against the re-election of the Exxon chair, LGIM will also support a shareholder proposal for an independent chair, as well as a shareholder proposal for increased transparency on political lobbying,” said the asset manager in a statement.
Home Depot (NYSE:HD) is one of the steadier names in the Dow this year and although it traded lower today, there’s some good news in the form of four straight months of rising applications for home purchases.
Of course, Home Depot is deemed an “essential” retailer during the Covid-19 pandemic and while that may skew the company’s quarterly results (it reports next week), some analysts believe those gains are sustainable because as businesses reopen, they may need to repurchase new appliances.
Speaking of Retailers…
Walgreens (NASDAQ:WBA), a Dow stock I haven’t mentioned in awhile, should be levered to the coronavirus trade and is an essential retailer. That hasn’t mattered much as highlighted by a decline of more than 5%, cementing its status as one of the worst-performing Dow stocks this year.
Cisco Systems (NASDAQ:CSCO) is reporting earnings after the close today and by the looks of things, investors aren’t expecting much, or are expecting weakness, because the stock dropped 4% today.
Bottom Line on the Dow Jones Today
Earnings season is winding down, but over the next week or so, investors will be treated to an avalanche of retail earnings. As noted above, Home Depot reports next week and so does Walmart. Expect a tale of two types of consumer spending as these reports emerge.
“The Refinitiv U.S. Retail and Restaurant Q1 earnings index is expected to show a -25.6% decline,” according to the research firm. “The Household Durables and Household Products sectors have the highest Q1 2020 earnings growth rates at 14.8% and 14.4%, respectively.”
Todd Shriber has been an InvestorPlace contributor since 2014. As of this writing, he did not hold a position in any of the aforementioned securities.