The new GOP plan includes another check for Americans and continued help for the unemployed.


Stocks slumped on Wall Street Thursday after the U.S. posted a record economic contraction in the second quarter as the coronavirus pandemic battered the economy, leading to widespread business shutdowns.

The Dow Jones industrial average dropped 500 points, a day after the Federal Reserve warned the pandemic might threaten the recovery and kept interest rates near zero. The Standard & Poor’s 500 fell 1.4%. The technology-heavy Nasdaq Composite fell 0.9%.

Treasury yields also fell in a sign of increased caution, while gold ticked down from its record level.

The U.S. economy shrank at a 32.9% annual rate in the April-June period, its worst quarter in history by far. Also adding to pressure Thursday, another 1.4 million laid-off Americans applied for unemployment benefits last week as the extra help from the federal government came to an end.

“It was an epically bad second quarter and we got our first look at just how bad,” Greg McBride, chief financial analyst at Bankrate, said in a note. “The virus spread and economic rollbacks in the weeks since do not bode well for the labor market in the weeks and months ahead.”

Lower interest rates and investor optimism about a possible coronavirus vaccine have helped global markets recover most of this year’s losses. But analysts say it might be too early to bet the recovery will persist, given the rising infection numbers in the United States, Brazil and other countries.

The benchmark S&P 500 index, which tumbled 34% to its March low, is back within about 5% from its February record.

Second-quarter GDP: U.S. economy contracted record 32.9% in Q2 amid state shutdowns, COVID-19 contagion fears

Jobless benefits: More Americans file for unemployment as extra $600 benefit ends and COVID-19 surges

On Wednesday, Fed Chairman Jerome Powell warned that rising U.S. cases, which have led some state governments to reimpose anti-disease measures, threaten the modest recovery from the pandemic.

The Fed said it would keep buying $120 billion of Treasury and mortgage bonds every month to encourage borrowing and spending, but Powell said Congress needs to take action. Legislators have yet to agree on aid after $600 in weekly unemployment benefits for millions of Americans run out this week.

“The lack of new action this week by the central bank should not be seen as a suggestion that the worst of the economic impact has passed, but rather a recognition that the Fed wasted no time and almost immediately deployed all reasonable tools at its disposal early on to help carry the economy through the shutdown,” Lindsey Piegza, chief economist at Stifel Nicolaus, said in a note.

Looking ahead, investors are eyeing upcoming earnings reports to gauge the health of corporate America, with Apple, Amazon, Google parent Alphabet and Facebook on tap Thursday after the closing bell.

Technology stocks held up better than the rest of the market, as they have through the pandemic. The sector fell 1.2% in Thursday, less than half the decline of financial stocks.

Energy stocks had some of the market’s sharpest losses, dropping in concert with oil prices amid worries about weaker demand amid a struggling global economy. Exxon Mobil dropped 4.5%, and ConocoPhillips lost 9.5%.

Global markets accelerated losses overnight in Europe after Germany said its economy shrank by 10% in the second quarter from the previous three-month period. In Europe, Frankfurt’s DAX retreated 2.4% to 12,511 after the GDP figures came in below expectations.

Economists note that the second quarter was the economic low point and recent data has shown a relatively strong bounce back since then. Still, the second quarter drop was the sharpest on record for Germany, Europe’s largest economy, and suggests the eurozone figures due Friday could also be worse than predicted.

The CAC 40 stock index in France declined 1.2% to 4,900, and the FTSE 100 in London lost 1.6% to 6,036.

In Asia, the Shanghai Composite Index lost 0.2% to 3,286.82 and the Nikkei 225 in Tokyo gave up 0.3% to 22,339.23.

The Hang Seng in Hong Kong tumbled .07% to 24,710.59 after data Wednesday showed the territory’s economy shrank by 9% in the quarter ending in June.

Contributing: The Associated Press

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