Dow Jones Braces for Worst Jobs Report in U.S. History

Analysts warn that April's unemployment body count will put downwards pressure on the Dow. | Source: Don Emmert / AFP

• The stock market is bracing for the worst jobs report in American history.
• If past monthly updates are anything to go by, the Dow will slide in response to Friday’s posting.
• And with the jobless rate set to rise further, this stock market headwind could fester for many months to come.

The Dow Jones is bracing itself for what economists predict will be the worst monthly employment report in American history. On Friday, the U.S. Department of Labor is expected to confirm that upwards of 20 million Americans lost their jobs last month.

The unemployment rate could hit 20% or higher, as the Fed’s James Bullard warned yesterday. And with the coronavirus likely to have lingering effects into 2021, the U.S. economy and stock market will take longer to recover than they did to fall.

Unemployment Will Be Worse Than You Think

The Dow Jones hasn’t taken much notice of discouraging jobless claims numbers since the coronavirus pandemic ignited unprecedented disruptions in the U.S. economy. But expect that to change on Friday, when the government statistics expose just how much of that economy is being hollowed out over the longer term.

Analysts predict the April unemployment rate could land anywhere between 16% and 20% – or even a little higher.

At the very least, the data will show that 20 million people lost their jobs last month. This is what payroll processor Automatic Data Processing (ADP) reported yesterday about the private sector alone.

Commenting on the figures, ADP Research Institute’s Ahu Yildirmaz said:

Job losses of this scale are unprecedented. The total number of job losses for the month of April alone was more than double the total jobs lost during the Great Recession.

As ominous as the ADP’s numbers are for the Dow, they’re likely to be an underestimate of the real figure. Over 30 million people have applied for unemployment benefits over the past six weeks.

As such, economists are predicting higher jobless rates for April. St. Louis Federal Reserve President James Bullard told CNBC that the unemployment rate could be higher than 20%:

The unemployment rate is going to be extremely high. We think 20% isn’t unlikely, could even be higher than that. You’ve also got this PPP program, which has encouraged firms to keep their workers on their payrolls even though they’re not doing that much business.

Jobs Figures Will Hit Dow Jones & Stock Markets Hard

Regardless of just how high the figures could go, even the baseline estimate could be depressingly bad for the Dow Jones.

Economists polled by Refinitiv expect Friday’s figures to reveal a total jobless count of 21.5 million. Economists polled by MarketWatch anticipate 22 million. If Friday’s figures are anything like this – or even worse – don’t be surprised when the Dow Jones and other stock markets to fall hard.

For the past week, the Dow has been limping along lifelessly, looking for a crumb of hope. Figures from the Department of Labor, revealing just how deep the coronavirus damage really is, could send it down hard.

It wouldn’t be the first time. The Dow Jones fell by 360 points on April 3, the date the government published its March jobs report.

Analysts warn that April’s unemployment body count will put downwards pressure on the Dow again. Speaking to CNCB, Wells Fargo’s Michael Schumacher said:

I think it could spook people. In the markets, we’ve been watching the weekly claims, but everybody knows what unemployment is.

Eventually, America’s employment situation will recover. But it’s going to take time. Recall that James Bullard previously predicted that the unemployment rate could hit 30% by the end of Q2.

This drip of increasingly bad news before things improve will continue hitting the stock market badly. The Dow and other benchmark indices will continue seeing turbulent times until America is completely clear of the coronavirus.

Bullard himself is predicting a third-quarter recovery, but with the CDC saying the Covid-19 outbreak could last until 2021 in America, all bets are off until further notice.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the stocks mentioned.