US Stocks Tumble from Extremes as Investors Search for Sweet Spot that Represents Value

The major U.S. stock indexes finished lower on Wednesday after fresh economic data revealed a cooling of U.S. business activity and the stalemate in Congress over more stimulus elevated concerns about the strength of the economy while the number of global coronavirus cases continued to rise.

In the cash market on Wednesday, the benchmark S&P 500 Index settled at 3236.92, down 78.65 or -2.31%. The blue chip Dow Jones Industrial Average finished at 26763.13, down 525.05 or -1.88% and the tech-driven NASDAQ Composite closed at 10632.99, down 330.65 or -2.95%.

Economy is Leveling Off

From March 23 to September 2, hopes of a strong recovery and mountains of fiscal and monetary stimulus measures fueled a rally that took the S&P 500 and NASDAQ Composite to all-time highs. But doubts over another stimulus bill and a sell-off in overvalued heavyweight technology-related stocks have weighed on investor sentiment since the market peaked the first week of the month.

Meanwhile, Federal Reserve Chair Jerome Powell said on Wednesday that the central bank was not planning any “major” changes in its Main Street Lending Program, while saying that both the Fed and Congress need to “stay with it” in working to bolster the economic recovery.

Before Powell made his statement, data from IHS Markit showed gains at factories were offset by a slowdown in the broader services sector in September, suggesting a loss of momentum in the economy at a time when concerns are rising about a potential surge in COVID-19 cases heading into the colder months.

Wednesday market six months to the day that U.S. stocks on March 23 hit their lowest point during the pandemic-induced sell-off. The historic rally from that low was fueled by the notion that the U.S. economy would post a “V-shaped” recovery.

Recent economic data and other developments, however, suggest the economy is now leveling off about 80% of activity before the pandemic and won’t get back to pre-pandemic levels until a vaccine against COVID-19 is in place.

The price action suggests that investors believe the economy is going to struggle recovering that last 20%. Investors believe the economy will eventually get there, but the process is going to be much slower than it was in the first three months of the reopening.

Sectors and Stocks

The S&P 500 slid to lows last seen in late July and is now down 9.6% from its record high hit three weeks ago. That puts it less than half a percentage point from entering corrective territory, as the NASDAQ did last week.

On Wednesday, the benchmark and tech-driven indexes fell more than 2%, and all 11 of the major S&P sectors closed lower. Energy already the worst-performing sector this year – led the rout in its biggest single-day decline since July 9.

Additionally, Wall Street favorites including Apple Inc, Google-parent Alphabet Inc and Amazon.com Inc, which have borne the brunt of recent losses, again declined at a rate exceeding losses of the benchmark S&P 500. A decline in Facebook Inc came in below the S&P decline.

For a look at all of today’s economic events, check out our economic calendar.