As the Dow Jones Industrial Average (DJIA) slogs through the week’s final trading session, stock market bulls find themselves wrestling with the same twin threats that haunted them on Monday: stimulus stalemate and a “buckling economy.”
The stimulus narrative hasn’t budged all that much. Everyone craves a spending package with the word “trillion” attached. The only question is what number will precede it.
Absent any tangible progress in those negotiations – Senate Republicans left Washington for the week and won’t unveil their proposal until at least July 27 – investors have little choice but to wring their hands and fret about what this week’s jobless claims data means for the economy.
That – along with rapidly escalating tensions with China – is what’s on Wall Street’s mind this morning.
As of 10:11 am ET, the Dow Jones had declined by 78.19 points or 0.29% to 26,574.14.
The S&P 500 fell 0.57% to 3,217.34, while the Nasdaq dropped 1.47% to 10,307.7.
At these levels, the broad stock market looks set to close the week at roughly the same place it ended the last one.
Unfortunately, the same can’t be said of the economy.
When the coronavirus pandemic first began to disrupt life in the U.S., investors ignored two consecutive historic spikes in new jobless claims. With the economy shutting down almost instantaneously, everyone knew those were coming.
For the next 15 weeks, bulls cheered figures that would have put ice in economists’ veins before the pandemic. New filings might still be above 1 million, but at least they’re trending down!
Jobless claims rose for the first week in 16. According to Bloomberg, this could represent a tipping point for market sentiment:
The official numbers have begun to confirm what many Americans feel in their bones: the economy is buckling once again.
While economist Mohamed El-Erian didn’t go that far in his analysis, he said it’s evidence the U.S. is not experiencing the V-shaped recovery analysts hoped to see.
Confirming El-Erian’s thesis, U.S. PMI undershot forecasts this morning. Manufacturing PMI came in at 51.3 (forecast: 52), while services PMI contracted to 49.6 (forecast: 51).
The deteriorating economic recovery makes next week’s stimulus negotiations even more high stakes.
So why are members of Congress heading home to their districts for the weekend rather than staying in Washington to hash out a deal?
David Bahnsen, the chief investment officer at the Bahnsen Group, says that for Senate Republicans, that’s all part of the plan.
Bahnsen wrote Thursday that Senate Majority Leader Mitch McConnell deliberately dragged his feet to keep the spending package as lean as possible:
It is clear to me now that… McConnell’s strategy of waiting until the last second to take up the fourth stimulus bill was quite purposeful, and that if discussions had begun 4+ weeks ago, it would still have taken until this point to get passed, yet would have had four weeks of both the House Democrats and the White House adding to it, making it much larger than he knows his chamber has an appetite for.
Democrats muscled a $3.4 trillion bill through the House during a party-line vote in May. They’ve stuck by the 1,815-page HEROES Act as their opening offer in the two months since.
Senate Republicans say they’re shooting for a package much closer to $1 trillion. They’re keeping their cards close to the vest about what the proposal entails.
The risk is that, by pushing off the negotiations until the last minute, legislators left themselves little margin for error. That’s borne out by the GOP’s inability to finalize their proposal in time to unveil it on Thursday, their original target date.
There’s little doubt a deal will get done. But much like the economic recovery itself, it could be a bumpy ride.
Last modified: July 24, 2020 2:14 PM UTC