The 1800 point plunge (6.9 per cent) on Wall Street’s Dow Jones followed statements from the Federal Reserve chair Jerome Powell that the US was in for a long recovery.
The drop wiped billions off the value of US assets.
The comments ended hopes that the US could recover quickly after better than expected jobs figures recently and a belief that the end of the lockdowns would lead to a strong recovery in consumer spending.
The broader S&P 500 index fell 5.9 per cent.
Powell’s comments were seen as a reality check for investors and the US volatility index, known as the “fear index” jumped by 38 per cent. Australia’s volatility index was up 13.8 per cent this morning.
Traders are now warning that volatility will be the new normal.
There were also concerns of a second wave of the coronavirus hitting the US after restrictions in many states were eased.
It was the worst day for the US since March 18 when lockdowns started.
Travel-related companies suffered the most with many down 10 per cent or more.
Oil prices were also sharply lower.
The Nasdaq snapped a three-day streak of record closing highs.
The sell-off was broad, with all 11 major sectors of the S&P 500 falling from nearly 4.0 per cent to well over 9.0 per cent.
“There’s really no buy point,” said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago.
“It’s pretty much selling all the way through.”
Tim Ghriskey, chief investment strategist at Inverness Counsel in New York, agreed.
“Everything’s for sale,” Ghriskey added.
“There’s fear we’re near a top.”
US deaths from COVID-19 could reach 200,000 in September, a grim result of the country’s economic re-opening before getting growth of new cases down to a controllable level, according to a leading health expert.
At the conclusion of its two-day monetary policy meeting on Wednesday, the US Federal Reserve released its first pandemic-era economic outlook after which Chair Jerome Powell warned of a “long road” to recovery.
“The Fed keeping rates steady through 2022 could give investors the impression that the Fed may be more concerned about the pace of economic recovery than originally anticipated,” said Joseph Sroka, chief investment officer at NovaPoint in Atlanta.
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