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Wall Street Opens Sharply Lower on Fed Gloom; Dow Down 350 Points

·3-min read

By Geoffrey Smith -- U.S. stock markets tumbled at the opening on Thursday, before paring losses somewhat, as the Federal Reserve's warnings about a slow recovery from the pandemic forced a rethink on the outlook for earnings growth in the years ahead.

By 10:05 AM ET, the Dow Jo8nes Industrial Average was down 157 points, or 0.6%, at 27,875 points. The S&P 500 was down 0.8% and the Nasdaq Composite was down 1.2%, weighed on by losses of over 1.7% in Tesla (NASDAQ:TSLA) and 1.3% in Apple (NASDAQ:AAPL).

Cloud data company Snowflake (NYSE:SNOW), which more than doubled on its stock market debut on Wednesday, initially fell 13% but was holding on to most of its gains. By 10:05 AM, it had pared its losses to 8.6%. Jfrog (NASDAQ:FROG) stock, which also debuted strongly on Wednesday, was down 2.2%.

At its meeting, the Fed had suggested that it would need to keep interest rates at or near zero for at least the next three years, but gave no hint of when it might increase its monthly bond purchases, which have been a key factor in driving the post-pandemic rally.

"We now think that some additional trigger—such as a disorderly rise in yields at longer maturities or a deterioration of the economy—would likely be required," for the Fed to provide further stimulus, Goldman Sachs (NYSE:GS) strategist David Mericle wrote in a morning note. By contrast, Fed Chairman Jerome Powell had said repeatedly that the central bank considers its current policy stance "appropriate" and reminded his audience of the need for support from fiscal policy.

Such support is still in the balance. Politico reported on Thursday that Republican Senators are still resisting pressure from President Trump to craft a new stimulus package closer to the size of the one proposed by a bipartisan committee of lawmakers from the House of Representatives.

Signs that the hitherto buoyant U.S. housing market is cooling off, and that layoffs continue to run at a high rate, also weighed on the market. Housing starts fell for the first time in four months in August, as did building permits, but analysts expect this to be a temporary dip.

Ian Shepherdson, chief U.S. economist with Pantheon Macroeconomics, noted that the drop in housing starts was "more than accounted for" by the impact of Hurricane Laura and Tropical Storm Marco, which hit the southern U.S. last month. The drop in building permits, meanwhile, was entirely due to the volatile multi-family segment, whereas permits for single-family homes continued to rise rapidly.

"Further increases in permit issuance are coming, and starts will rebound strongly too," Shepherdson said.

Elsewhere, airline stocks were generally outperforming, while still in negative territory, as industry chiefs headed to Washington to plead for more bailout funds. United Airlines (NASDAQ:UAL) stock was down 0.4%, while Delta Air Lines (NYSE:DAL) stock was down 0.8% and Southwest (NYSE:LUV) stock was down 1.4%. American Airlines (NASDAQ:AAL) stock was down 0.9%.

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