The Nasdaq and S&P 500 pressed toward modest gains on Friday, but the Dow Jones Industrial Average (DJIA) failed to make meaningful ground for a second straight day.
Weak consumer sentiment and a relentless surge in new virus cases took the wind out of Wall Street. And with federal unemployment benefits set to expire in two weeks, the easy money could be over for Dow bulls.
Less than half an hour before the closing bell, the Dow had declined by 25.35 points or 0.09% to settle at 26,709.36.
The S&P 500 rose 0.49% to 3,231.25, while the Nasdaq jumped 0.46% to 10,522.02. This was despite both indices suffering from Netflix stock’s brutal 7% decline.
On the economic data front, stock market bulls received some concerning news. Michigan consumer sentiment – a leading indicator of spending – came in worse than forecast at 73.2 versus a consensus estimate of 79.
Consumer spending is arguably the most vital cog in the domestic economy. Reduced household outlays, particularly in the beleaguered services sector, can significantly worsen the employment outlook throughout the labor market.
What’s even more concerning for Dow bulls is that weakening sentiment may not be the greatest threat to consumer spending.
The weekly $600 federal unemployment benefit expires at the end of July, and it’s still unclear what level of support – if any – Congress will adopt in its place.
Given that this income bump has been instrumental in supporting consumer activity, economists at ING suggest investors should keep an eye on next week’s congressional stimulus package negotiations.
Indeed with 32 million people continuing to claim unemployment benefits as of the last week in June, there is a real risk of a renewed downturn in consumer activity once the $600/week Federal boost ends in two weeks. Consequently, we will be looking for any breakthrough in a new fiscal package that could at least mitigate this potential bad news for growth.
This is the sort of shock that could potentially make investors take the economic consequences of the pandemic – and particularly lockdown restrictions – more seriously.
Financial markets have not been showing any real correlation to the ongoing pandemic in the United States. Even as the virus count continues to hit record highs, Wall Street remains relatively disinterested.
The political consequences of the health crisis could force them to pay more attention. In Florida, a critical swing state, the president is losing a key demographic of older voters that he dominated in 2016.
The growing possibility of a “blue wave” slamming the stock market isn’t the only consideration.
There’s the additional risk that Trump could ramp up his China antagonism in a desperate attempt to claw back some moderate voters.
Friday was a mixed bag for the Dow 30, with no big winners or big losers but a fairly even split between gains and losses.
Apple – which currently commands a ~10% weighting in the index – traded mostly flat, dipping less than 0.1%.
Boeing stock extended its multiday slide, falling another 1.6%. The aerospace manufacturer remains sensitive to its partner airlines’ performance. Their prospects aren’t improving as lockdown restrictions intensify in many locations domestically and abroad.
Florida’s record infection counts are troubling news for Disney stock, which lost 0.7% as its Orlando park reopening came under renewed assault in the press.
On the other side of the table, Cisco Systems led the Dow Jones with a 2.4% rally. Pfizer and Intel followed closely behind with gains of around 1.8%.