MANHATTAN (CN) — A week after posting record highs across the board, the three major U.S. indices flattened on Friday.
By Friday’s closing bell, the Dow Jones Industrial Average managed to eke out a bare profit of 46 points. The S&P 500 and Nasdaq were not so lucky, though they fell only 0.13% and 0.23%, respectively.
Wall Street has put up only minor gains and losses all week as investors nibbled at the edges — and their fingernails — waiting for Congress to pass another stimulus package. Unfortunately, several controversial issues have driven a wedge between Democrats and Republicans once hopeful for a deal.
“If the bill is indeed scuttled on legalistic grounds the market reaction is likely to be far more negative,” wrote Boris Schlossberg of BK Asset Management in a note. “For now equity traders just like their [foreign currency] brethren remain nonplussed by the news, but indices resting near record highs the prospect of a downward surprise could quickly collapse prices and create panic that could feed upon itself just ahead of the holiday season.”
Last week, prospects of a $908 billion stimulus package seemed good, with Senate Majority Leader McConnell saying he “had a good conversation” with House Speaker Nancy Pelosi. As a result, markets hit record highs.
On Thursday, however, McConnell said the current stalemate was due to an old sticking point — the Republican-backed plan for a liability safe harbor for coronavirus-related lawsuits. He blamed Democrats for “bullying small-business owners and college presidents, who’ve been pleading for these protections for months.”
Pelosi later told reporters that safe harbor is “such an assault on American workers that I hope that the group goes nowhere near what he is presenting.”
Without a stimulus, it is certainly not just Wall Street that is harmed. State governments are facing immense budget crises, and unemployment claims are starting to tick up again.
Counting both state and federal claims under new pandemic programs, more than 1.3 million new claims came in the week ending December 5, according to data from the Labor Department. That is a 300,00 increase from the previous week, though many economists say that Thanksgiving week is typically fuzzy in terms of accurate data.
Of the 1.3 million, about 947,000 non-seasonally adjusted claims came through state unemployment systems compared with 718,000 the previous week, while about 427,000 came from the federal Pandemic Unemployment Assistance program compared with 288,000 the prior week.
“The surge indicates that last week’s improvement was likely a fluke, and while initial claims have see-sawed in the last two months, today’s report suggests claims are worsening rather than just stagnating,” said Daniel Zhao, senior economist at Glassdoor Economic Research.
Last week marks the 38th straight week of unemployment claims seeing higher numbers than the worst week of the Great Recession, though the federal government did not offer unemployment benefits during 2007-09.
Those federal programs currently are slated to expire the day after Christmas, with some experts saying 12 million Americans could immediately lose benefits if that happens. State benefits typically last for 26 weeks, which mean most state unemployment claims could be reaching their end, if they haven’t already.
The quagmire on Capitol Hill couldn’t come at a worse time. On Wednesday, the United States recorded more than 3,100 deaths from Covid-19 — more than the number of Americans who died during the 9/11 terrorist attacks or the 1906 earthquake in San Francisco. Covid deaths represent 5 of the 10 deadliest days of American history.
“It cannot be stressed enough that the economy is not on a safe recovery trajectory yet,” researcher August Benzow of the Economic Innovation Group wrote in a paper. “In some ways, the threat to the economy this time is more insidious than it was in the spring, when an unprecedented decline in economic activity within a few short weeks was enough to marshal an aggressive federal response.”
Every state has seen double-digit percentage increase in Covid-19 cases since September, but some states are suffering more than others. States like Montana and Wyoming have seen cases rise more than 700%, according to Benzow’s analysis, while neighboring North and South Dakota have been hit with 560% and 485% increase, respectively.
Benzow added that the economic rebound during the summer made it “easy for some to believe that no further federal intervention was needed, but this data clearly shows that the ‘return to normal’ was short-lived, and as residents of every state are grappling with the spreading threat of the virus the economic outlook appears increasingly dire.”
According to data compiled by Johns Hopkins University, there have been nearly 70 million cases of Covid-19 worldwide, with 1.5 million deaths. In the United States, about 15.6 million Americans have contracted the disease, while about 292,000 have died.
Fortunately, the vaccines continue to move along at record pace. On Friday, U.S. Food and Drug Administration Commissioner Stephen Hahn announced that Pfizer’s Covid-19 vaccine would soon receive emergency use authorization.
Shortly after Hahn’s tweet, reports leaked out that President Trump’s chief of staff had threatened to fire Hahn if the vaccine was not approved by Friday evening.
In a tweet, later Trump called the FDA “a big, old, slow turtle” and ordered Hahn to approve the vaccine. “Get the dam vaccines out NOW, Dr. Hahn,” the president tweeted, misspelling his expletive. “Stop playing games and start saving lives!!!”
On Thursday, a key FDA panel voted 17-4 to approve the vaccine for emergency use, with one member abstaining. The panel members who voted against approval reportedly had concerns about the safety data on 16- and 17-year-olds.
Hope for the vaccine has kept fears of a broken stimulus negotiation somewhat at bay. “While investors may be a little wary of the political machinations, they don’t seem to be so concerned that they are selling stocks at any great price,” consultant Joel Naroff wrote. “It would be surprising if the markets go on an extended downturn, despite the terrible realty that the virus is killing people at an incredible, horrible pace.”
Volatility has simmered down in recent weeks, but huge market swings have marked the Covid era on Wall Street, and could again.
According to Jessica Rabe at DataTrek, the S&P 500 saw 12 one-day moves outside of three standard deviations, “events that should only happen individually once every three years.” By contrast, in 2019 the S&P 500 saw most of its gains within 20 trading days spread out throughout the year.
Rabe noted the VIX index, or the measure of volatility on Wall Street, hit a new high point in mid-March when lockdowns began. “This is a record we hope stands for many, many years to come.”
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