Bleak Jobs Data Is Rude Awakening for Optimistic Traders

Pickup and delivery is still possible at Macho Nacho, in Morristown, N.J.., which is otherwise closed to the public due to the Covid-19 pandemic. Signs on the door in English and Spanish warn customers to cover their faces in the store. (Photo by Nick Rummell/Courthouse News Service)

MANHATTAN (CN) — All of the 23 million jobs created since the 2009 market crash, during both the Obama and Trump administrations, are now gone.

Investors initially traded Thursday with cautious optimism, even after the unemployment report was announced, but then began selling off later in the day. 

The Labor Department announced an additional 4.4 million in new unemployment claims were filed last week, bringing the total since mid-March to more than 26 million, with some states — such as Florida — seeing whopping jumps in new claims.

The Dow Jones Industrial Average opened to mild gains Thursday morning but closed only 35 points. The S&P 500 and Nasdaq both remained slightly under 0% for the day. 

Investors have largely “baked in” the huge spike of unemployment claims, even though it has outpaced most analysts’ predictions during the last several weeks.

“So far equity markets have looked through the horrid data on the assumption that lockdowns will soon begin to ease and economic activity will return to normal, but the longer we remain in this state of limbo as new cases declined but at a painfully slow rate, the harder it will be for the bulls to push equity prices higher,” Boris Schlossberg of BK Asset Management wrote in an investor note Thursday morning before the morning bell.

“The number to watch going forward will be ‘continuing claims,’ the number of workers actually enrolled in unemployment insurance programs and receiving payments,” according to a research note by DataTrek Research. 

Last week, the continuing claims stood at 12.5 million. According to the Labor Department, there were about 16 million continuing claims as of April 11.

Investors, who had rallied Wednesday after the Senate unanimously passed $310 billion in additional funds for the Small Business Administration’s Paycheck Protection Program, watched for the House to vote on the measure.

Hope for the popular program might soon turn sour, however, amid analysis that the new infusion of cash will soon dry up, and that large firms appeared to get priority over smaller ones for funding. 

The Treasury Department on Thursday tried to allay those concerns, releasing guidance warning that applicant companies need to certify their PPP loans are necessary to maintain the company’s ongoing business.

“It is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith,” the guidance warns. 

Some lawmakers want more done. In testimony Thursday, New Jersey Representative Tom Malinowski said regulators need to draft new eligibility rules to prevent big companies from “gobbling up loans” meant for smaller companies that are actually at risk of going under.

“I am angry that some of us were accused of playing politics because we wanted to fix this program before pumping money into it,” said Malinowski, a Democrat. “We all know it’s going to need more money again soon — and I believe it should be fully funded for the duration of the crisis — but let’s do better than that.”

Republicans, including Senate Majority Leader Mitch McConnell and Senator Marco Rubio accused Democrats of “holding hostage” the additional funding to get other coronavirus-related measures passed. 

The House is expected to vote Thursday on the SBA bill, after which President Trump will likely sign it immediately.

Meanwhile, markets abroad focused intently on the European Council, which met virtually discuss how to fund a stimulus package worth 540 billion euros (about $582 billion).

The meeting ended with the commission approving the package but without an agreement on how exactly to pay for it. Indications are that the recovery fund could be paid for by an increase in the EU’s 2021 budget, as well as additional leverage by the European Central Bank.

“This is actually real money, potentially,” said Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics. “It has the potential to be macroeconomically relevant and politically relevant.”

European markets, which closed before the meeting ended, finished the day on a positive note, gaining just under 1 percentage point — but markets have been more focused on Europe’s central bank rather than on the European Council.

“This is not about salvaging people’s ability to be able to eat or have an income,” Kierkegaard said, adding that the central bank has been acting as the “short-term firefighter” for stimulus issues.

In this screenshot from a Thursday meeting, European Parliament President David Sassoli calls for a plan to restore jobs wiped out by the global pandemic response.

In its Roadmap for Recovery, the council has called for “a Marshall-Plan type investment effort” that includes the central banks keeping rates down and investing in clean and digital technologies.

At a press conference during the meeting, European Parliament President David Sassoli said the EU needs a plan to restore jobs.

“We need to come out of this with a stronger, more communitarian Europe, and at the same time a Europe that shares the efforts, particularly those countries that cannot afford to meet the burden of this reconstruction effort with further deficits,” Sassoli said. 

German Chancellor Angela Merkel attends a Thursday meeting of the German federal parliament at the Reichstag building in Berlin. (AP Photo/Michael Sohn)

Earlier in the day, German Chancellor Angela Merkel warned member countries must be prepared for higher taxation. “One thing is already clear,” she said at the Bundestag, “we must be ready, in the spirit of solidarity, and for a limited time, to provide much higher contributions to the European budget.”

Worldwide more than 2.6 million people have been confirmed infected by Covid-19, according to data from researchers at Johns Hopkins University, and more than 186,000 have died. More than 854,000 people in the United States have contracted the virus, while 47,000 have died.

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