Dragging Stimulus Talks Cast Pall Over Market Moves

Investors continued to rally Thursday while Congress fiddles with another stimulus proposal.  

Billy Nuckols, 10, plays video games while his brother Jimmy, 6, watches TV at home in Burke, Va., on July 19, 2020. The activities are a major part of their daily routine during the coronavirus pandemic. (AP Photo/Ben Nuckols)

MANHATTAN (CN) — Wall Street added to the week’s gains, with all three U.S. indexes moving upward Thursday on news that weekly unemployment claims dropped to their lowest point since lockdowns began.

By the closing bell, the Dow Jones Industrial Average netted 185 points, about a 0.7% increase, while the S&P 500 and Nasdaq increased 0.6% and 1%, respectively. Gold, which has risen apace with equities, also gained for the day, settling at $2,074 per ounce by the closing bell.

This week’s unemployment report certainly showed encouraging signs, as the 984,000 new claims is the first time weekly claims came in under 1 million since March. Still lingering, however, is the shadow of Wednesday’s ADP jobs report

Much lower than Wall Street analysts had predicted, ADP found only 167,000 non-farm jobs were gained in July. The last two ADP reports have been very good — marking 3.3 million and 4.3 million jobs gained for May and June, respectively — but came off of the horrible 19.4 million jobs lost in April. The economy would have to gain about 12 million jobs just to return to its March baseline.

The employment landscape may worsen, particularly if Congress cannot agree on a new stimulus package.

An analysis by the Morning Consult on Wednesday found that one-third of all unemployment insurance recipients, or 6.1 million Americans, would have to tap into their savings to cover basic expenses without the $600 in additional weekly unemployment payments, which expired last Friday.

Democrats have made the $600 one of their key demands in the next stimulus bill, but Republicans have balked at extending the $600, saying it has deters low-wage earners from re-entering the work force.

Undercutting the theory that unemployment was high because of additional jobless benefits, however, Yale University economists reported that 70% of likely unemployment insurance recipients who returned to work had made more while on unemployment than they did with their prior wages.

“We find no evidence to support concerns about adverse aggregate labor supply effects of expanded UI generosity in the context of the current pandemic,” the Yale researchers wrote.  

The White House has floated the idea of dropping the weekly plus-up to $400, but Heidi Shierholz, senior economist at the Economic Policy Institute, said dropping even to that amount would cause the U.S. to shed 1.7 million more jobs thanks to the loss in spending.

“Because we did not put the public health measures in place necessary to successfully reopen, the coronavirus has spiked and the jobs gains we saw in May and June have stalled, if not reversed,” she said. 

Senators left for their August recess Thursday afternoon, and the House is also on recess next week. Both houses could be called back, however, to finalize a deal.

“Four months after the CARES Act was signed into law, multiple dimensions of the recovery now look constrained,” wrote Oren Klachkin, the lead economist at Oxford Economics. “With a health solution still out of reach and the rebound looking fragile, fiscal stimulus is urgently needed to prevent the economy from sliding back into a downturn.”

Beyond the stimulus, a smattering of earnings reports on Thursday showed some companies racking up big profits during the pandemic while others have suffered.

Hilton for one reported a huge $312 million drop in revenue and a $693 million drop in net income year over year, marking a $432 million loss in income last quarter. “As restrictions are lifting and properties around the world are reopening, we are seeing improved occupancy,” CEO Christopher Nassetta said in a statement. He added: “While we have a long journey in front of us, we are on the road to recovery and look forward to the opportunities ahead.”

On the flip side of the coin, video game company Nintendo posted a super 438% boost in its profits year over year, from $210 million in Q2 2019 operating profits to about $1.4 billion last quarter in Q2 2019. The company owed its success to the widely popular Switch console, which has been a boon to families during stay-at-home orders.

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