S&P 500 drops 2.6% in the biggest loss since October while the Dow and Nasdaq tumbled, just a week after Joe Biden took office.

Business Insider reports:

The Federal Reserve acknowledged the weakening of economic data during Wednesday’s FOMC meeting, suggesting that it’s too soon to be discussing changes to the current stance of monetary policy.

“The data from here through the second and third quarters should be strong, but for now, however, the Fed appears to be merely watching and promoting the efforts of the new Administration and Treasury as they institute proactive fiscal support,” said Rick Rieder, BlackRock’s chief investment officer of global fixed income.

“The fact is that with the passage of the last fiscal stimulus package in December (after the Fed last met), and the debate heating up over the prospects and size of the next one, the focus is firmly on the fiscal side of the equation now,” he added.

White House Press Secretary Jen Psaki said Wednesday that Treasury Secretary Janet Yellen is “monitoring the situation” around the GameStop-related changes in the stock market.

Here’s where US indexes stood shortly after the 4:00 p.m. ET close on Wednesday:

  • S&P 500: 3,750.95, down 2.56%
  • Dow Jones industrial average: 30,302.97, down 2.05% (634.07 points)
  • Nasdaq composite: 13,270.60, down 2.61%

Mohamed El-Erian, the president of Queens’ College, Cambridge university, and adviser to Allianz and Gramercy, wrote an article titled “Crises facing Biden threaten to create vicious cycles.”

Here’s his analysis on Financial Times:

The $1.9tn fiscal package recently announced by Mr Biden seeks to address the first three of these issues. Plans for additional fiscal stimulus, scheduled for February, would take aim at the fourth.

Undoubtedly, some will worry about the efficiency of some of these measures, as well as the longer-term implications for deficits and debt. Yet most pressing questions lie elsewhere. Will the Democrats’ razor-thin congressional majority allow the timely passage of stimulus? Will there be enough “early wins” to facilitate the national unity needed to overcome the health crisis in particular? And how will markets react?

Mr Biden’s two-part plan for fiscal stimulus is an attempt to cut the risk of congressional opposition. But finding ways to build and mobilise national unity is likely to prove hard. Large sections of the US population feel marginalised, undermining collective efforts to deal with common challenges — as we are seeing in attempts to slow Covid-19 infections and increase vaccine adoption.

The markets question is perhaps the most vexing of all. Fed officials have recently felt compelled to adopt an even more accommodating tone despite favourable signs for a large fiscal effort, buoyant capital markets and higher asset prices.