One big question floating around Wall Street right now is: Why are stocks down today?
Although there have been a handful of winners in the stock market today, the major indices are all currently in the red. The Dow Jones Industrial Average is leading the way, down roughly 0.42% in intraday trading. Despite gains in some Big Tech names, the Nasdaq Composite is close behind, also down more than 0.3%.
So why are stocks down today? There appear to be two key reasons.
The first comes from the latest comments from Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen. The duo gave testimony before the House Financial Services Committee. Although investors had access to prepared remarks ahead of time, it seems that apprehension surrounding the latest central bank insight was causing nervous trading. The major indices bounced around leading up to and after the testimony earlier this afternoon.
Powell and Yellen are keeping up their balance act. They encouraged lawmakers today that the economic recovery is happening more quickly than expected, but that there is still a long way to go. Yellen highlighted that the economy is roughly 10 million jobs below pre-pandemic levels. This balance therefore necessitates continued aggressive action by the Federal Reserve, such as the ongoing commitment to near-zero interest rates.
Where then do the jitters come from? One challenge for Powell has been convincing investors that inflation is not a long-term threat to the stock market. Aggressive policies from the central bank, combined with the $1.9 trillion American Rescue Plan, have seen inflation fears spike. Powell has been working to distinguish between short-term price gains and long-term inflation. To him, what we are seeing is average back to a 2% target rate. He reiterated this message today, saying the latest stimulus package would not trigger unwanted inflation.
Why Are Stocks Down Today?
It seems then that stocks are down because Wall Street is still warming up to what Powell has to say. However, also hurting matters is news out of Europe. There, many national officials are revisiting Covid-19 restrictions and warning of emerging virus strains. Just today, Germany said it would extend its lockdown measures by one month in response to case levels.
For investors, this slower-than-expected reopening story creates problems for several popular trades. Oil stocks were lower today, as were some cruise stocks and airline names. Although the trajectory is still in place, it seems any hiccup in the timeline will come with great volatility.
Keep a close eye on this story, and watch for a turnaround if sentiment around the Congressional testimonies shifts.
On the date of publication, Sarah Smith did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Sarah Smith is a Web Content Producer with InvestorPlace.com.