US equities slid on Tuesday as the country’s top economic policymakers sat before Congress to detail their response to the coronavirus pandemic, with companies hard-hit by the crisis leading the declines.
Wall Street’s blue-chip S&P 500 index declined 0.8 per cent while the technology-focused Nasdaq Composite lost 1.1 per cent. The Russell 2000 index of small-cap stocks slumped 3.6 per cent, its worst day in a month.
The declines, which hit the airline and leisure industries acutely, followed news of an intensifying coronavirus crisis in continental Europe. German lawmakers agreed to extend its months-long lockdown to April 18 after a surge in infections on Tuesday.
“Some of the concern today was around new lockdowns in Europe,” said Ralph Bassett, the head of North American equities at Aberdeen Standard Investments. “The concern is you will have inflation but perhaps not with commensurate global growth on the other side. ”
The drop in global stocks accompanied testimony from Janet Yellen, US Treasury secretary, before the House of Representatives financial services committee, where she defended the Biden administration’s stimulus plans. She was joined by Jay Powell, Federal Reserve chair, who said that he believed an uptick in inflation would be “neither particularly large nor persistent”.
They spoke on the first anniversary of the point at which central bank intervention succeeded in stopping a sell-off sparked by the outbreak of coronavirus from cascading through financial markets.
“It’s going to be more of the same,” said Fahad Kamal, chief investment officer at Kleinwort Hambros, Société Générale’s private banking and wealth management division. “I think the Fed is going to remain super accommodative. ”
Yellen said that, with the passing of President Joe Biden’s $1.9tn stimulus plan, she regarded it as possible that the US would return to “full employment” in 2022. Powell echoed those remarks, saying that “the recovery has progressed more quickly than generally expected and looks to be strengthening”.
The yield on the US 10-year Treasury note, which moves inversely to price, fell 0.07 percentage points to 1.62 per cent, having peaked close to 1.75 per cent last week, a 14-month high.
“The Fed’s been pretty clear on where they want to be, I don’t think we’ll hear anything particularly new. We do expect inflation to increase, but it will fall back down again,” said Paul Flood, portfolio manager at Newton Investment Management.
In Europe, the region-wide Stoxx 600 index closed down 0.2 per cent, while the UK’s FTSE 100 dropped 0.4 per cent and Germany’s Xetra Dax ended the session little changed.
“Europe is having headwinds of a different kind,” said Kamal, noting that vaccination programmes in many countries were going at a “really poor” pace “especially when compared to the US and UK”. However, Europe was likely to report growth in the second half of the year, with its reopening of economies generating “procyclical tailwinds”, he added.
Oil prices fell on Tuesday. Brent crude, the international benchmark, dropped 5.9 per cent to $60.79 a barrel and West Texas Intermediate, the US benchmark, slipped 6.2 per cent to $57.76 a barrel.
In Asia, China’s CSI 300 index and South Korea’s Kospi closed 1 per cent lower and Hong Kong’s Hang Seng fell 1.3 per cent.