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Tuesday, May 28, 2024 | Back issues
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Markets Make Do With Crumbs as Stimulus Talks Drag for Another Week

With no ground gained in stimulus negotiations on Capitol Hill, markets barely moved throughout the week to end on a mildly positive note.

MANHATTAN (CN) — Mild fluctuations in the markets this week led to a paltry gain on Friday, as Wall Street twiddles its thumbs waiting for a stimulus package.

By the closing bell, the Dow Jones Industrial Average — which had its biggest movement on Monday when it fell more than 400 points — lost 27 points, a 0.1% decrease. The Nasdaq and S&P 500, both of which also saw minor dips and bumps, settled at 0.37% and 0.35% increases, respectively. 

Investors were almost singularly focused this week on talks between Republicans and Democrats on Capitol Hill over another relief package.

Hopes were high earlier in the week after it was reported House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin were engaged once again in talks on a stimulus bill. But those hopes were dashed after Senate Republicans thwarted the talks, trying and then failing to pass a $500 billion “skinny” deal past their Democratic colleagues.

On Wednesday, Pelosi said a deal may not get done until after Election Day, and some analysts agree a stimulus has a better chance next month.

At the Society of Professional Economists’ annual conference meanwhile, the Federal Reserve continued to beat the drum for another stimulus package.

“Further targeted fiscal support will be needed alongside accommodative monetary policy to turn this K-shaped recovery into a broad-based and inclusive recovery,” said Lael Brainard, a governor on the Fed’s board who some speculate could be on Joe Biden’s short list for treasury secretary should he win the presidency

Some believe the wait won’t be much longer.

“While many suggest no additional aid coming until the new term, I think we will see something passed early in the lame duck session,” James Meyer, chief investment oficer at Tower Bridge Advisors, wrote in an investor’s note. “The stock market would like that, particularly if it came with some bipartisan support.” 

Poor employment data due soon could also goose Congress to act. “Arguably the November 6 payrolls number could help to focus the minds of politicians more,” wrote James Knightley, chief international economist at ING. “A weak figure would probably be a more significant catalyst for politicians to deliver action on fiscal stimulus.”

Jobs data this week was surprisingly good, with new unemployment claims dropping again to hit their lowest point since government shutdowns began in mid-March. The Labor Department reported on Thursday that 787,000 new claims were filed the week ending Oct. 17. 

The significant drop was attributed to the fact that California finally audited its unemployment system and was reporting current numbers.

But the data was not all rosy. Claims under the newly created Pandemic Unemployment Assistance program hit nearly 10.2 million claims as of Oct. 3. Nearly 3.3 million Americans filed claims under the Pandemic Emergency Unemployment Compensation program, which allows workers to collect an additional 13 weeks of unemployment benefits. 

Investors with holdings in China also may have been encouraged by news that the communist country’s GDP rose 4.9% in the third quarter and its imports surged 13.2% last month. China’s GDP had already increased 3.2% in the second quarter.

“The strength of this indicator not only confirms China is on its way to a V-shaped recovery following the Covid-19 pandemic, but its demand for global goods might also help the recovery of the global economy in general,” wrote Simon Chen at FactSet.

Economists at the Federal Reserve Bank of New York think China’s recovery might not be all it’s cracked up to be, as the rebound “faces potential headwinds in the forms of high levels of debt, declining return to capital accumulation, and a shrinking working-age population in China.”

They also found that, while manufacturing and infrastructure investment have grown over the last several months, consumption has had a slower rebound and showed positive year-over-year growth only in 3Q 2020.

Other economic indicators this week were for the most part positive. Home sales did slightly better than expected, clocking in at 6.5 million in August, and median home prices reached a new record at $311,800. September marked the fourth straight month of increasing existing-home sales, according to the National Association of Realtors. 

NAR Chief Economist Lawrence Yun said the splurge in housing spending could harm first-time home buyers in the future. “Home prices are simply rising too fast,” he wrote in the report. 

As a result of the housing boom, home builder sentiment has increased 2 points to 85 points total, according to data from the National Association of Home Builders. “Traffic remains high and record-low interest rates are keeping demand strong as the concept of ‘home’ has taken on renewed importance for work, study, and other purposes in the Covid era,” NAHB Chairman Chuck Fowke said in a statement. But Fowke noted that shortages in lots, labor and lumber have caused construction times to lengthen. 

Next week is likely to paint a more fulsome picture of the economy, as the first report for Q3 2020’s GDP will be released. A slew of earnings reports from Big Tech throughout next week will also show whether the spike in share prices earlier in the summer may hold further into the autumn. 

As the fall progresses, however, so do the number of coronavirus cases. According to the most recent data, the United States has seen daily new cases hit 71,600, nearly as high as the peak in July. Hospitalizations also rose in the last week for 38 states, according to a Washington Post analysis. 

“The pandemic is not over,” said Dr. Robert Redfield, director of the U.S. Centers for Disease Control and Prevention, earlier this week.

In total about 42 million have contracted Covid-19 worldwide, according to data compiled by Johns Hopkins University. In the United States alone, 8.4 million have been confirmed infected while about 223,000 have died. More than 1.1 million people have died from the virus.

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Categories / Economy, Financial

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