June Week 2 Wrap-Up: US Stock Market Plunge after Seven Consecutive Weekly Gains

U.S. stock markets reported gains in Friday trading after generating the worst single-day loss on Thursday since early March as investor’s concerns over the second wave of virus dampened hopes of economic recovery in the second half of the year.

Federal Reserve Chairman Jerome Powell’s speech early this week has supported bearish sentiments as he said that interest rates are likely to stay around 0% over the next two years, with expectations that domestic product will fall 6.5% this year. Powell’s remarks about the bumpy ride to economic recovery have set the tone for the rest of the week.

Despite ending the Friday trade in positive territory, the US stock markets ended the week in a red. All three indices declined at a mid-single-digit rate, with Dow dropped 5.55%, the S&P 500 declined 4.8%, and the Nasdaq dipped 2.33%.   

“I don’t think that much has really changed. It’s just investors are so trained to buy that dip, they are riding that now,” said Shahnawaz Malik, senior investment advisor at Cornerstone Capital. “We’re going to continue to see these bouts of volatility until we have a vaccine” for the coronavirus.

Fears of slower than expected growth in the economic recovery have slashed bullish sentiments. The International Monetary Fund’s Gita Gopinath believes that the economic growth is facing significant scarring and predicts that the updated economic projections from IMF will be worse than April forecasts.

The economic weaknesses are not only limited to the United States. The recent reports about the economic health of the UK have contributed to bearish sentiments. The economic health of European Countries has also been significantly dented by coronavirus related lockdowns. UK’s gross domestic product contracted by 20% in April.