Dow Jones sheds over 700 points amid coronavirus spikes, Fed stress test

Dow Jones sheds over 700 points amid coronavirus spikes, Fed stress test

The Dow Jones went on a decline over fears of rising coronavirus cases. With the Federal Reserve putting restrictions on big banks, will the markets react negatively before the month ends?

Last week, Wall Street went on a roller coaster as the Dow Jones tried to recover amid confusing news reports about the U.S.-China trade deal.

However, on Friday, the Dow Jones Industrial Average dipped 730.05 points closing at 25,015.55 with mainly both the COVID-19 pandemic plus the Fed influencing the negative sentiment of the markets.

California recently reported its highest number of cases, and it has caused Disneyland parks in the area to push back reopening to a later date. As of this writing, the cases are nearing 100,000, as per Johns Hopkins University.

In addition, analysts already reported their projections for the second half of the year over at CNBC.

Carter Worth of Cornerstone Macro projected that the S&P 500 odds of being negative at the midyear are at 35.5%.

The U.S. is not even close to curb the coronavirus

This year, the U.S. has done a lot of medical breakthroughs—starting from Gilead’s remdesivir to multiple reports of successful vaccine trials from Moderna and Novavax, which also gave hope in the markets.

However, as the number of cases gets worse, it looks like the current direction of the U.S. markets isn’t going in their favor.

In a CNN interview, Bill Gates expressed his disappointment that the U.S. has not done enough to reduce the spread of COVID-19 and he said that the current picture was bleaker than he would have expected as he added:

“The range of behaviors in the US right now, some people being very conservative in what they do, and some people ignoring the epidemic, is huge […] Some people almost feel like it’s a political thing which is unfortunate.”

Fed pressures banks upon stress test results

A recent press release by the Federal Reserve unveiled results of its stress tests for 2020 involving worst-case scenarios that big banks may experience throughout the duration of this pandemic.

The Board also conducted a sensitivity analysis to evaluate the resiliency of large banks under three downside scenarios, which could result from the coronavirus event, as follows:

  • a V-shaped recession and recovery;
  • a slower, U-shaped recession and recovery;
  • and a W-shaped, double-dip recession.

The unemployment rates peaked between 15.6% and 19.5% as a result of the three reported scenarios from the Fed.

In light of the stress test results, the Federal Reserve has required large banks to preserve capital through suspending share repurchases for the third quarter of this year.

The announcement sent some bank shares tumbling down on Friday with Bank of America and JPMorgan Chase falling more than five percent. In addition, Wells Fargo fell 7.4% and Goldman Sachs dropped 8.7% as per CNBC.

With only a few days left before the month ends, the Dow Jones may still have a chance to recover as Wall Street begins another trading week.

Featured image courtesy of Mattia Panciroli/Flickr

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