MANHATTAN (CN) — A whopping 6.6 million new unemployment claims and news of a truce in the Russia-Saudi Arabia oil war sent markets on a rollercoaster ride Thursday.
Stocks began the day with tepid gains after the Labor Department released a record-breaking number of new unemployment claims, with now close to 10 million filing for unemployment in the last two weeks.
Quickly captivating investors’ attention, however, oil prices rose to about $24 a barrel around midday. By closing bell, the Dow Jones Industrial Average settled at 21,410 points, a 2.2% increase for the day.
Wall Street and economists had expected high unemployment numbers at least matching those from last week, but few anticipated such an escalation.
“The numbers were expected to remain high, but for it to double was surprising to me and to many of my colleagues,” said Ross Levine, an economics professor at University of California-Berkeley’s Haas School of Business.
“It is now very easy to see 20% unemployment” later this year, he said. “And that is really catastrophic.”
The Federal Reserve Bank of St. Louis has predicted unemployment may rise to 32%, a rate higher than during the Great Depression. Earlier this week Boston Federal Reserve President Eric Rosengren said unemployment claims would likely “rise pretty dramatically over the next couple of months.”
April is likely to be worse than March, experts say. A report Thursday by Bank of America Global Research predicts 16 million to 20 million claims over the next two months, with a total unemployment rate of about 15%.
“The recession appears to be deeper and more prolonged than we were led to believe just 14 days ago when we last updated our forecasts, not just in the U.S., but globally as well,” the report states, adding that the second and third quarters of 2020 are likely to be the worst before a recovery in the fourth quarter.
Analysts at Goldman Sachs — who on Wednesday predicted about 6 million new unemployment claims would be announced today — said unemployment would likely rise to 18 million additional claims by the end of April.
When unemployment numbers hit a historic spike last week, investors initially showed little showed little concern. That stoic response ultimately gave way later in the week, however, to significant drops.
Part of the lack of an immediate response may be that investors have already assumed huge unemployment and are looking for other factors.
“We’re probably going to see several weeks of really bad numbers,” said Paige Ouimet, an associate finance professor at University of North Carolina’s Kenan-Flagler Business School.
Ouimet noted most of the losses will likely be felt among small businesses, estimating as many as 18 million small businesses jobs may be at risk during the downturn.
Small businesses may also be a good indicator the U.S. economy is returning to normal, she said.
“If people are already employed, and we’re suddenly allowed to go out and do things, you’re going to see a much faster recovery,” Ouimet said. “If you see a lot of bankruptcies … and slowly over time you add employment and demand, then it will take a lot longer.”
Levine offered a similar read, noting consumer confidence will drive smaller businesses, which will then drive the larger economy. “Even if politicians say ‘all clear,’ it’s only when the public decides it’s all clear that they’ll return to restaurants, go to movies, go to shops,” he said.
Small businesses, or those with 500 or fewer employees, can begin applying on Friday for a piece of the $350 billion in loans earmarked in the last stimulus package.
Levine said the loan program, and how well it is run by the Small Business Administration, will be crucial going forward. “That will separate us from the Great Depression,” he said.
A fourth stimulus package is currently in the works, though it would likely be in the billions of dollars and focused on infrastructure. Congress is not scheduled to reconvene until April 20.
Despite the dire unemployment, markets had some good news with a rise in oil prices.
President Trump tweeted late Thursday morning that Saudi Crown Prince Mohammed bin Salman bin Abdulaziz al Saud and Russian President Vladimir Putin both had pledged to cut back 10 million to 15 million barrels of oil to help boost prices.
Trump tweeted that the agreement between the countries “will be GREAT for the oil & gas industry!” and “Good (GREAT) news for everyone!”
The economy has experienced one of the worst — and most volatile — quarters on Wall Street due to the drop in oil prices and social-distancing guidelines to prevent the spread of coronavirus.
Confirmed cases of Covid-19, the respiratory disease caused by a new strain of coronavirus, have now has affected approximately 1 million and killed more than 51,000 worldwide, according to data compiled by Johns Hopkins University.
So far, about 234,000 in the United States have been infected by the virus, while 5,600 have died.
Those numbers are likely to increase as testing becomes more widespread, and the administration’s leading infectious-disease experts have suggested 100,000 to 200,000 Americans dying from the disease could be a best-case scenario at this point