Indices All Down After Rough-and-Tumble Week on Wall Street

MANHATTAN (CN) — Markets saw a slight drop in equities on Friday, capping a rollicking week of ups and downs, despite attempts by the Federal Reserve to calm investors.

Capping off a two-week span marked by a devastating rout and an impressive rebound, markets had a relatively calm day on Friday. The Dow Jones Industrial Average, down about 350 points earlier in the day, was able to recoup some of those losses to close out 244 points down, a 0.8% decrease. The Dow lost broke about even for the week.

The S&P 500 and Nasdaq also suffered losses on Friday, shedding 1.1% and 1%, respectively, with each index decreasing marginally where they started on Monday.

The biggest news for Wall Street this week came from the Federal Reserve, which announced Wednesday it would keep the federal funds interest rate near 0% until at least 2023.

The news did not have the intended effect on markets, though, which finished that day with mixed results. Many experts have suggested the Fed may keep overnight rates at 0% to 0.25% until 2024 or 2025. Even the central bank itself is extremely vague on what kinds of inflationary pressures or labor market performance would cause it to raise rates.

“We think that effectively saying that policy will remain highly accommodative until the economy is very far along in its recovery should provide strong support for the economy and get us there sooner rather than later,” said Fed Chairman Jerome Powell in comments to the press after the announcement. 

On Thursday evening, the central bank also released a number of hypothetical scenarios for its second round of bank stress tests. The two tests will check to see whether 34 banks can handle a severe global turndown with 12.5% unemployment and a lesser recession that peaks at 11% unemployment by the end of 2020. 

In June, the Fed found the banking sector would be able to weather most economic storms going forward, but just to be safe it restricted share buybacks during the third quarter and curbed investor dividends through at least September.

“Although the economy has improved materially over the last quarter, uncertainty over the course of the next few quarters remains unusually high, and these two additional tests will provide more information on the resiliency of large banks,” Vice Chair Randal Quarles said in a statement. 

The Fed cautioned that the scenarios posited are not forecasts and “are significantly more severe than most current baseline projections for the path of the U.S. economy under the stress testing period.” Firm-specific results from the tests will be announced by the end of the year.

The Federal Open Market Committee has projected median unemployment range of 5.5% next year that would gradually taper off over the next two years. The Fed committee also expects GDP to rise to as high as 5.5% next year — though its lower-end prediction has GDP at 0% growth in 2021 — before decreasing steadily over the coming years.

Unemployment has remained sticky, with 29.7 million Americans receiving some form of unemployment benefits as of last week. During the week ending September 11, the Labor Department received 1.4 million new claims, split about evenly between traditional unemployment and claims under the new Pandemic Unemployment Assistance program. 

In other bad news this week, the United States is going the wrong way on the trade deficit. In the second quarter, the account deficit — the measure of goods and services into and out of the United States — widened by $59 billion, or nearly 53%, to $170.5 billion, according to the Bureau of Economic Analysis. 

A drop in both goods and services contributed to the decrease, which is the largest quarterly gap since the end of 2008 when the U.S. economy was being throttled by the Great Recession.

Worse still, exports of goods and services fell about 28% to $444 billion, the lowest they have been since early 2010. This drop also marks the largest year-over-year drop on record since the index was started in the 1960s.

Despite some concerning economic data, however, consumer confidence continues to rise. The University of Michigan’s consumer sentiment index gained nearly 5 points this month to hit 78.9 on the index. Consumer sentiment is still more than 14 points lower than September 2019.

While consumer sentiment has been steadily rising, it is also is delicate. “Consumer sentiment remains vulnerable in the weeks ahead if Covid-19 cases pick up as we head into the fall, or if progress on a medical solution is slow,” analysts at Oxford Economics said in an investor’s note. “Failure on the part of policymakers to enact another fiscal relief package poses downside significant risks to the outlook for both consumer sentiment and spending.”

To date, more than 30 million have contracted Covid-19 worldwide, according to data compiled by Johns Hopkins University, while roughly 947,000 have died. In the United States alone, almost 6.7 million have been confirmed infected while almost 198,000 have died.

Follow @NickRummell

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