Updated at 4:07 p.m. ET
Stocks plunged Thursday amid reports of a second wave of coronavirus cases, as well as a warning from Fed officials that the economy may take longer than first thought to recover.
In one of the worst one-day drops in history, the Dow Jones Industrial Average closed down 1,861 points, or 6.9%, and the S&P 500 tumbled about 5.9%. Airline and hospitality companies, which have been especially hard hit by the COVID-19 lockdowns, were among those losing ground.
Prices also fell sharply in European and Asian markets.
The plunge took place after Texas reported 2,504 new coronavirus cases — the most since the pandemic began. Florida and Arizona also reported spikes, and California had the highest number of hospitalizations since May 13. Nationally, confirmed cases topped 2 million on Wednesday.
Before this week, stocks had been on a steady rise, with many investors concluding that the worst of the economic crisis was over. Major indexes regained much of the ground they lost in the early, dark days of the lockdowns. The Nasdaq composite index hit a record high this week.
But Wednesday's Fed announcement has left many investors questioning that assumption.
While Fed officials voted to keep interest rates low, they also issued a gloomy statement about the prospects for a full recovery. The Fed project that the unemployment rate will be more than 9% by year end, falling to 6.5% by the end of 2021. Those rates are dramatically higher than the nearly 50-year low of 3.5% earlier this year.
"The ongoing public health crisis will weigh heavily on economic activity, employment and inflation in the near term and poses considerable risks to the economic outlook over the medium term," the Fed said in a policy statement after a two-day meeting.
In a news conference later, Fed Chairman Jerome Powell said the central bank is committed to ensuring that the recovery will be "as robust as possible" by continuing to buy bonds but also warned, "It is a long road. It is going to take some time."
MARY LOUISE KELLY, HOST:
And the stock market plunged today, with the Dow losing more than 1,800 points. That's a drop of almost 7% of its value. The other major indexes also fell. It marks a return to the kind of intense volatility that the market experienced in March when coronavirus lockdowns were locking in. Here to explain is NPR's Jim Zarroli.
JIM ZARROLI, BYLINE: Hi, Mary Louise.
KELLY: What happened today?
ZARROLI: Well - oh, boy. This was the kind of day that gives people who own stocks vertigo. The market opened down, and then it just kept sinking all day. These are the kind of drops in the market you just don't - you don't see them a lot.
ZARROLI: It takes us back to the kind of panic selling that we saw in March. They're just really unusual. They don't happen. I mean, today's drop was actually one of the worst point drops in the history of the Dow.
KELLY: And why? What was the cause of this big sell-off?
ZARROLI: Well, probably the biggest reason was that we just got some really bad numbers about the coronavirus epidemic. We just passed 2 million cases nationwide. We're also seeing more cases in the Sun Belt - in Texas, Arizona, Florida. These are all the kinds of states that were among the first to open. And now, you know, you're seeing a lot of states - all states starting to reopen. And it looks like there's - there may be this second wave of cases. And that's just - that's enough to scare the daylights out of people.
KELLY: Now, we should note that the stock market just in these last several weeks had been doing really well, and we all knew the coronavirus had not gone away. Had investors forgotten about it or - why are they freaking out so much today?
ZARROLI: Well, I think a lot of investors had come to believe, you know, that the worst was behind us. I mean, we've been seeing cases level off in states like New York and New Jersey. States are reopening their economies. We - last Friday, we got that unemployment report that was just so much better than expected.
So I think a lot of investors were just looking ahead and thinking, you know, maybe the economy has hit bottom. And they were rushing back into the market. So you had this kind of dichotomy in which the stock market was going up. It had basically regained a lot of the ground that it lost since March. I mean, you even had a record close in the Nasdaq composite index. But the economy itself still has a lot of problems.
KELLY: Meanwhile, we should note the Federal Reserve met yesterday. They decided to keep interest rates low, keep them steady, which would seem to be the kind of thing investors would want to hear.
ZARROLI: Yeah. It normally is the kind of thing that investors want to hear. I mean, Fed officials said they would keep doing everything they could to keep the economy going. They're going to keep interest rates at zero at least for two years. They basically said, you know, we are in this for the long haul.
But then it - what they said after that that really spooked a lot of people. They said - in a statement, they said, the current health crisis will weigh heavily on economic activity and unemployment in the long run. And then after that, the Fed chair, Jerome Powell, had a press conference, and he said this.
(SOUNDBITE OF PRESS CONFERENCE)
JEROME POWELL: I think we have to be honest that it's a long road. It's, depending on how you count it, well more than 20 million people displaced in the labor market.
ZARROLI: Powell said that unemployment is likely to come down this year, which is good, but it's still going to be 9.3% by the end of 2020. And that's...
ZARROLI: You know, that's about as high as we saw in the depths of the Great Recession.
ZARROLI: And people heard this and thought, you know, maybe we've been too optimistic.
KELLY: Been too optimistic. NPR's Jim Zarroli.
Thank you, Jim.
ZARROLI: You're welcome. Transcript provided by NPR, Copyright NPR.