MANHATTAN (CN) — Wall Street’s hopes for four days of unbroken gains ended on Wednesday as markets dipped slightly.
Investors have been hanging their hats on various positive economic indicators in recent days, but the dearth of such data on Wednesday sent markets into a funk. Posting only meager gains at the opening bell, the Dow Jones Industrial Average closed 170 points down, a 0.5% decrease. The S&P 500 also fell slightly, while the Nasdaq managed to remain barely above zero.
“The markets have rallied on what I call false positive reports,” wrote Joel Naroff of Naroff Economics on Wednesday. “Those are numbers that look great, but only because they started from such a low level.”
Naroff noted that “the Fed is buying just about anything that is being sold” in the markets, despite saying it isn’t interested in keeping equities at a certain level. “The Fed is supporting the equity and bond markets and the government is supporting businesses and households,” he wrote. “Isn’t capitalism great?”
Indeed, Federal Reserve Chairman Jerome Powell has made no secret of his intent to push the central bank to its monetary limits, and, where the Fed dares not to tread, Powell has urged Congress to boldly go.
In testimony this morning before the House Financial Services Committee, Powell urged lawmakers to continue unemployment benefits past July, when the enhanced benefits are scheduled to expire — particularly during “this critical phase” when the economy is starting to recover. “This is a natural disaster,” Powell said. “This isn’t their fault.”
Political battle lines are increasingly hardening over the prospect of continuing the $600 weekly plus-up of unemployment benefits during the coronavirus pandemic, with Republicans saying it incentivizes workers to remain at home while Democrats characterize the extra cash as a lifeline for out-of-work blue-collar workers.
Secretary of Labor Eugene Scalia said Monday during a speech to the Heritage Foundation that “the extraordinary circumstances that called for the $600 benefit in March will no longer be present come August,” and that “different policies will be called for.”
Democrats in Congress are digging in on continuing the expanded unemployment benefits.
“Some people in Congress want to let the COVID-19 unemployment benefits expire. But we can’t just say ‘the problem is fixed!’ while millions are still suffering — or while Black unemployment is still increasing,” Massachusetts Senator Elizabeth Warren tweeted on Tuesday.
Similar positions are being staked out, though not nearly as starkly, between the parties on the Fed’s announcement earlier this week that it would purchase up to $750 billion in individual corporate bonds on the secondary market.
While the news helped to bolster markets, some Republicans have questioned whether the plan represents an out-of-bounds foray by the Fed into fiscal policy.
Trying to calm fiscal conservatives in the Senate, Powell emphasized Tuesday that the bond-buying facility was opened up only due to an “excess of caution.” During Wednesday’s three hours of testimony, Powell again assured lawmakers the Fed would not likely dive deeply into the bond market.
“Our purchases will be at the bottom of the range,” he said, noting the current well-performing market. “The markets are working. Companies can borrow. People can borrow. Companies are not showing tons of financial stress, and they’re less likely to take cost-cutting measures.”
Investors are also increasingly worried about a growing spike in coronavirus cases and the related politicization. In a Wednesday opinion piece in the Wall Street Journal, Vice President Mike Pence wrote that panic about a second wave of coronavirus is “overblown.”
On Tuesday, at least five states — Arizona, Florida, Oklahoma, Oregon and Texas — all reported the highest one-day number of new cases. Many of those states also are reporting record hospitalizations, which indicates it is not just a ramp-up of testing that has caused cases to balloon.
Fortunately, the rate of deaths from Covid-19 has started to drop, and promising data show the inexpensive steroid dexamethasone could be used as an effective treatment to further reduce virus-related deaths.
More than 8.2 million people have been infected by Covid-19 worldwide, while 445,000 have died, according to data compiled by Johns Hopkins University. In the United States, 2.1 million people have contracted Covid-19, while more than 117,000 have died.