An ignominious week in the real world translated to a week of record highs for Wall Street, as investors keep their eyes fixed on the second quarter and beyond.
MANHATTAN (CN) — In a bizarre bit of math, the political lows of Wednesday and record-breaking high Covid-19 deaths added up to new high marks Friday for all three Wall Street exchanges.
But despite bad news in the real world reading like an apocalyptic Top Ten list on an Evil David Letterman show, investors throughout the week repeatedly set new records in equity trading.
By the closing bell on Friday, the Dow Jones Industrial Average had polished off a week of nearly unstoppable increases, gaining 491 points since Monday to finish at 31,097 points.
A day after the Nasdaq broke the 13,000-point mark for the first time, the index climbed even higher to hit 13,201 points. The S&P 500, fresh off its own record highs from Thursday, finished the week even better at 3,824 points.
“New all-time highs everywhere. A new richest man in the world. Interest rates and banks finally breaking out. Crypto is running like a freight train. More IPOs are coming. Is this 1996 or 1999?” wrote James Vogt of Tower Bridge Advisors on Friday.
Vogt explained the equity rally, the yield on 10-year Treasuries peaking over 1% for the first time since lockdowns in March, and low interest rates for mortgages and loans points to 2021 GDP growth being the highest in three decades.
“When does the party end? That is the biggest concern today,” Vogt warned, harkening to the dot-com bubble that capped a string of great years on Wall Street in the late 1990s.
In the economic world, if not on Wall Street, the broth is already starting to sour a bit.
On Friday the Bureau of Labor Statistics reported the U.S. economy lost 140,000 jobs last month, the first time that jobs have shrunk since April. The unemployment rate remained at 6.7%, according to the report.
The decrease was much different than the 50,000 to 60,000 jobs many economists had predicted, driven primarily by losses in the leisure and hospitality sector as well as in private education.
While the fall is nothing compared to the 20.5 million jobs the agency reported lost in April, it is a worrying trend that the economy is now backtracking on the meager progress it has made. The largest rise in employment was from the May report, which showed a gain of 2.5 million jobs, but employment gains have tapered off significantly since then.
Perhaps more worrying than the overall number, some say, is the still-high number of nontemporary layoffs even as temporary layoffs continue to steadily decrease.
“The increase in unemployed workers not on temporary layoff is concerning because it suggests that the low-hanging fruit of labor market recovery has mostly already been picked, in the form of people returning to their old jobs, and that further recovery will require the harder step of people finding new jobs, in some cases in new industries,” wrote Jason Furman and Wilson Powell III of the Peterson Institute for International Economics.
“The challenges of a speedy labor market adjustment grow the longer and worse the underlying unemployment situation gets,” they wrote.
Disappointment was almost assured earlier in the week, when ADP’s private-sector employment report showed 123,000 jobs lost from November to December. Small-sized businesses dropped 13,000 jobs, while large-sized businesses made up the bulk of the losses at 147,000 jobs. Midsized companies actually gained 37,000 jobs during that period.
Economists took the data with a grain of salt, pricing in the fact that the coronavirus has picked up significantly and that leisure is typically hurt during colder months.
“While these bleak numbers represent a weak handoff to 2021, the labor market recovery is expected to strengthen over the spring and summer as vaccinations lead to a gradually improving health situation,” wrote Lydia Boussour, a senior economist at Oxford Economics. She predicts about 6 million jobs will be recovered in 2021 after a mini-summer boom.
Unemployment claims remain at a fixed level, with Thursday’s report showing 787,000 initial claims filed during the week of January 2. This is the same amount as initially reported the week before, though that week’s number was revised up to 790,000.
For a bit of good news, investors had the ISM manufacturing index, which increased a couple points to 60.7, the index’s highest level since August 2018. A number of products, including several construction metals, lumber and electronic components, all saw record price increases.
“Manufacturing performed well for the seventh straight month, with demand, consumption, and inputs registering strong growth compared to November,” Timothy Fiore wrote in the report. He noted, however, that absenteeism, short-term shutdowns to sanitize factories, and slow hiring has limited manufacturing growth.
One unnamed respondent in the survey said that “Covid-19 is affecting us more strongly now than back in March” due to employee shortages and logistic issues, while a machinery factory reported it had higher sales than pre-Covid.
Struggling companies are now looking forward to a relaunch of the Paycheck Protection Program. The program will reopen next week for new and existing borrowers, with up to $284 billion in funds available through March.
The PPP, which was popular but was roundly criticized for initially allowing banks to prioritize large and publicly traded companies while some smaller companies were left out, now has $35 billion for first-time loans. Secondary loans are available to existing borrowers are limited to those with no more than 300 employees.
Additional news from the Federal Reserve was relatively light this week. The Federal Open Market Committee minutes from last month showed the central bank continued to view the economic situation as healing, but at an anemic pace. Fed officials unanimously agreed to keep asset purchases going at the current pace and not to tinker with interest rates, though that is hardly a surprise.
The minutes also reflected worries among Fed staff that the Covid-19 vaccine is not being deployed as quickly as it should. They also noted as an economic downside risk “the possibility of significant additional fiscal policy support not materializing in a timely manner.”
New daily deaths of Covid-19 in the United States breaching the 4,000-person mark for the first time on Thursday. On Thursday, Dr. Anthony Fauci said that “we believe things will get worse as we get into January.”
According to Johns Hopkins University, 88 million cases of Covid-19 have been reported worldwide, with more than 1.9 million deaths, according to data compiled by Johns Hopkins University. In the United States, 21.5 million Americans have contracted the disease, while more than 365,000 have died.