Wall Street gave up most of its gains from earlier in the week, as dire macroeconomic forecasts outstripped positive unemployment trends for investors Thursday.
MANHATTAN (CN) — Markets plummeted on Thursday even as new unemployment claims fell for the 10th straight week, giving up much of the gains made after last week’s surprisingly optimistic jobs report.
At the morning bell, the Dow Jones Industrial Average fell nearly 800 points, or 2.92%, vaporizing most of Monday’s gains. The S&P 500 also fell 2.5% at the open. Even the tech-laden Nasdaq, which hit a new high on Wednesday at 10,020 points, fell 2% to about 9,800 points.
The drop came after the Labor Department released its latest unemployment report, showing more than 1.5 million new claims filed for the week ending June 6. Nearly 21 million Americans received unemployment benefits as of May 30, the report found.
Coupled with the last week’s positive jobs report, which showed nonfarm jobs actually increased by 2.5 million in May, markets should be rallying on the news that unemployment continues to fall.
But investors are rattled. The volatility index, colloquially known as the fear index, shot up to 16.25% in early Thursday trading, though it still remains lower than in mid-March when it shot up to 82 points.
Many have questioned the Bureau of Labor Statistics’ jobs report, and the agency itself warned the response rate on the survey was 15% lower than usual and the unemployment rate could actually be 3% higher than reported.
Markets in Asia and Europe plunged ahead of the report, with the pan-European Stoxx 600 down 2.72% by 8:30 a.m. EST and most major Asian exchanges closing down 2% to 3%.
While new claims have steadily dropped, more than 44 million had filed claims since mid-March when the Covid-19 pandemic hit the United States in full force. Additionally, the number of Americans still on unemployment remains high, at 20.9 million as of the week ending May 30, according to the Labor Department.
Data also show unemployment has not been equal among all demographics. The BLS jobs report showed the unemployment rate for Hispanic workers is still very high, at 17.6% as of May, and the unemployment rate actually rose in May for African-American and Asian workers, to 16.8% and 15%, respectively.
“The downturn has not fallen equally on all Americans, and those least able to shoulder the burden have been the most affected,” Federal Reserve Chairman Jerome Powell said on Wednesday after the central bank’s governors met to discuss interest rates.
Powell also noted the disparity will continue to be felt as jobs are regained. “Clearly not everyone will go back,” he said, adding that “well, well into the millions” of workers likely won’t be able to return to their old job.
The disparity in employment also reaches across genders. According to a Pew Research report earlier this week, women lost more jobs than men from February to May; they outpaced men 11.5 million to 9 million in terms of jobs lost during that period. Hispanic women suffered even more, seeing a 21% decrease in their jobs compared with other women or men workers.
Pew found that men felt the sting of unemployment much more during the Great Recession, losing 5.5 million jobs versus 2.5 million for women.
Several dire forecasts this week have kept Wall Street bulls in check. On Wednesday the Federal Reserve predicted the U.S. economy would shrink by 6.5% this year, followed by a 5% gain in GDP net year. Unemployment in 2020 would remain high, according to the Fed forecast, likely remaining at 9.3% by year’s end and then 6.5% in 2021.
Investors were calmed, however, by the Fed’s dovish position on interest rates, as the central bank said it likely would not raise interest rates until 2023.
“We’re not thinking about raising rates. We’re not even thinking about thinking about raising rates,” said Federal Reserve Chairman Jerome Powell during a webcast following the committee meeting.
An earlier report from the Organization for Economic Cooperation and Development forecast the global economy will shrink by at least 6% this year, the most dire economic crisis since World War II. The group also warned that a significant second wave of Covid-19 could lead to economic output shrinking by at least 7.6%, with 40 million additional workers being laid off.
“Up until yesterday financial markets didn’t appear overly concerned about the prospect of a second wave,” Michael Hewson of CMC Markets UK wrote in a Thursday note. Recent forecasts by the OECD “appear to have concentrated minds in the wake of recent gains,” he added, “sending the usual suspects of travel, as well as oil and gas stocks, sharply lower.”
A second wave of coronavirus later this year is being seen as increasingly likely. Several states that reopened early have now seen spikes in the virus. In Texas, hospitalizations hit a new high point three days in a row, with more than 2,153 patients hospitalized with Covid-19 on Wednesday. More than 2,500 in Texas tested positive for Covid-19 on Wednesday, the state’s single-day record.
Nearly 7.4 million people have been infected by Covid-19 worldwide, while 417,000 have died, according to data compiled by Johns Hopkins University. In the United States, more than 2 million have contracted Covid-19, while nearly 113,000 have died.