Wall Street took a breather from last week’s massive rally but not so much that it still didn’t manage to eke out some record gains.
MANHATTAN (CN) — Even with unemployment and inflation concerns beginning to coalesce, markets managed to set new record highs while still slowing down this week.
The Dow Jones Industrial Average had gained 289 points at midweek and settled up 310 points by Friday’s closing bell. The Dow now sits at 31,458 points, a fresh record.
“Ten years ago, a 300+ point Dow Jones Industrial Average trading range would be a 3% move,” James Vogt at Tower Bridge Advisors wrote. “After this massive bull run, it is less than a 1% intraday move now.”
The other indices had similarly low-key, yet record-breaking, weeks. On Tuesday, the Nasdaq broke the 14,000-point mark for the first time ever, gaining a few additional points to finish the week at 14,095 points. The S&P 500 also set a new high point of 3,934 points on Friday as it closes in on 4,000 points.
Despite the lingering positivity on Wall Street, concerns remain about unemployment and inflation.
Unemployment claims once again dipped, though only slightly. According to the Labor Department, more than 793,000 new claims were filed for the week ending February 6, compared with 812,000 the previous week. The prior week’s number originally came in at 779,000 new claims, but the agency revised those numbers upward by 33,000 claims.
New claims have remained stubbornly high at about 700,000 to 900,000 new claims weekly for the past several weeks and have consistently come in higher than analyst expectations.
Last week marks the 47th straight week of initial unemployment claims totaling more than the worst week of the Great Recession, a fact that Heidi Shierholz, senior economist at the Economic Policy Institute, says makes a strong case for further stimulus.
On Thursday night, the House Ways and Means Committee approved $900 billion in additional benefits, including $1,400 checks to beleaguered Americans. The move paves the way for the House to approve the total package sometime by the end of February as planned, just in time to extend unemployment benefits before they run out again.
Shierholz noted that the 11-week extension to new federal pandemic-related unemployment programs that were passed in December “just kick down the road” since they expire soon. “Congress must pass further extensions before mid-March, or millions will exhaust benefits at that time, when the virus is still rampant and the labor market is still week,” she wrote.
Some analysts also see the stimulus as a way to boost equity markets. Vogt suggests Biden should use the legislation as a way to grant incentives to technology companies so they can build more factories in the United States, even if those companies are far from the neediest.
“From an economic perspective, this makes great long-term sense,” he wrote. “Over the years, too much stimulus has been earmarked for short-term projects that fizzle out. Building factories in a growing industry will produce many long-term jobs and have a multiplier effect.”
Other experts say inflation could rise as a result of the stimulus, and thus the total dollar amount must be kept low. James Knightley, chief international economist at ING, notes that inflation has risen to 1.4% since last May and could rise above 3% — even as high as 4% — in coming months.
“If price levels stay unchanged for the next four months the comparison with the depressed price levels of that heavily stressed March-May period means headline inflation is going to rise to 2.8% year over year,” Knightley wrote, noting increasing housing rent could beef up that number significantly. “That is the bear minimum annual inflation will get to.”
