Markets Finally Back in the Black After a Month of Successive Losses

Investors skated to safety on Friday after spending most of the week on thin ice due to a massive sell-off in financial stocks. 

Maria Flores kisses her son Pedro Garcia, 4, while a teacher takes his hand as he arrives for the first day of school at the Mosaic Pre-K Center in Queens, this past Monday. (AP Photo/Mark Lennihan)

MANHATTAN (CN) — Despite a mild uptick to round out the week, investors are likely happy to put September behind them after four straight weeks of losses on Wall Street.

The Dow Jones Industrial Average hit a few early snags but then rallied throughout the day to end up 360 points, a 1.3% increase. The S&P 500 had a nearly identical path, closing 1.6% up.

The Nasdaq, harkening back to earlier in the summer when it feasted on gains among Big Tech, did even better, finishing at 241 points, a 2.2% increase. Most of the day’s gains were again driven by technology stocks like Apple and Facebook, which gained 3.7% and 2%, respectively.

The way the week ended was quite a different story than the week’s beginning, when investors, spooked by reports that several large banks had laundered about $2 trillion in illicit funds, began selling off financial stocks, leading markets into a downward spiral. 

Many had attributed the steep losses to recent media reports that large banks had laundered trillions of dollars in dirty money from fraudsters, offshore companies, Russian oligarchs and international criminals.

The reports, led by BuzzFeed, indicated that major banks — including JPMorgan, Standard Chartered, Barclays, HSBC, and Bank of New York Mellon — had moved about $2 trillion using suspicious transactions over the years. Deutsche Bank was the biggest offender, according to the reports, moving at $1.2 trillion of the suspicious transfers. 

Wall Street hasn’t been able to calm down much since, particularly after President Trump suggested he would not peacefully abdicate from the White House if he loses to Joe Biden. “We’re going to have to see what happens,” Trump said when asked about a peaceful transition in the event he loses. 

This week investors had the usual array of economic indicators to choose from, including a report showing that the 800,000–900,000 new unemployment claims is remaining steady and manufacturing is creeping upward. This week also marked the first day of fall, bringing cooling weather that could usher in a second wave of Covid-19 cases, as well as a slowdown to the economic recovery.

“We’re now in ‘Phase 2’ of the recovery, in which the economy will face persistent headwinds from the Covid-19 crisis without the support of meaningful stimulus and as a vaccine still remains unavailable,” according to an investor’s note from Oxford Economics researchers.

On Friday, durable goods orders showed a mild increase of 0.4% in August, or $1 billion, according to the U.S. Census Bureau. This marks the fourth-straight month of increases in durable goods orders. Orders for nondefense capital goods excluding aircraft rose by 1.8%, while new orders of nondefense capital goods increased 7.8%. 

But orders for big-ticket items came in at less than expected, a potentially worrying sign.

“Business investment activity remained strong, a sign that confidence may be improving,” economic consultant Joel Naroff wrote. However, “if you remove the aircraft sector, which is weird right now as it adjusts to the long-term implications of the pandemic, orders were down sharply,” he added. 

More encouraging was the increase in new home sales, which showed another jump in demand last month by 4.8%, the highest seen in almost 15 years. Conversely, though, new home construction has started to drop slightly, with 1.47 million new units built in August. The number of new homes built is roughly the same as it was last August, before the pandemic, but demand is now much higher, leading some to believe a housing bubble may be in the works.

“Sellers are more reluctant to list their home given the uncertainty over the economy and the pandemic environment,” said Javier Vivas, director of economic research for Realtor.com. “Buyers, on the other hand, especially first timers, remain largely unfazed by the challenges and are motivated by low mortgage rates and the fear of missing out on the right home.”

Despite mixed economic indicators and the market tanking recently, some experts remain chipper about the economy’s path. Richmond Fed President Tom Barkin noted on Thursday the recession was deep but quick, predicting the U.S. economy would likely recover fully sometime next year. Barkin likened the economy to being a patient “out of the hospital now but we’re recovering at home.”

Fed Vice Chair Randal Quarles, speaking Wednesday at the annual Institute of International Bankers summit, expressed optimism about the course of the international economy, as well as the path the virus has taken.

“Businesses, which have adjusted operations, and in some cases changed business models, seem much better adapted to remaining open,” Quarles said, adding that “the economy has rebounded more strongly than almost any forecaster expected,” despite unemployment remaining somewhat high at 8.4%.

“I am also hopeful that better testing, tracing, and treatment regimens, as well as improved understanding by the public about how to manage the risks of the disease, will allow firms, individuals, and governments to address public concerns about the virus while avoiding a second severe downturn or a protracted stagnation,” he said. 

To date, 32 million have contracted Covid-19 worldwide, according to data compiled by Johns Hopkins University, while roughly 985,000 have died. In the United States alone, more than 7 million have been confirmed infected while 203,000 have died.

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