Small Gains Give Markets Some Bounce on Bad Employment Tidings

Despite some bad news on the manufacturing and employment fronts, markets creeped along on Thursday.

After being closed for months due to the pandemic, malls are bringing all types of drive-in entertainment to their massive parking lots, hoping to lure people back to their properties. Above is the Drive ‘N Drag at Westfield Garden State Plaza, in Paramus, N.J. (Dave Kotinsky/Polk Imaging for Westfield via AP)

MANHATTAN (CN) — Markets inched forward on Thursday despite the double-barreled blast rising unemployment and falling manufacturing.

The Dow Jones Industrial Average gained 47 points, a 0.17% increase, while the Nasdaq gained 1% on the back of its tech stocks. The S&P 500, which earlier in the week had hit a new high mark, wasn’t able to make it back to that point, gaining 0.32% to settle at 3,385 points.

Investors were primarily focused on the Labor Department’s weekly unemployment report earlier in the day.

After a brief reprieve last week, new unemployment claims bumped back up over the 1 million mark, showing that while markets have regained much of what has been lost since mid-March, businesses and workers continue to feel the pain.

Most states saw an uptick in their unemployment claims, with New Jersey, Texas and New York leading the pack on that front.

Some analysts cautioned to take the increase with a grain of salt. “In normal times, with normal levels of claims, the numbers bounce around all the time,” wrote economic consultant Joel Naroff. “Still, with the government’s business and household subsidies running out, it isn’t clear whether those firms that are just hanging on can make it.”

Naroff also warned, however, that the uptick be a predictor of rising claims in the fall. “By the end of the summer, many firms could throw in the towel,” he wrote. “It is way too early to say that, but the claims increase is at least a yellow flag.”

The good news is that continuing claims — a strong measure of just how many people are facing longer-term unemployment — fell again to stand at just under 15 million, as of Aug 8. Overall, however, about 28 million Americans received jobless benefits as of Aug. 1.

However, the 636,000 drop in continuing claims is still being outpaced by new claims, and the number of Americans on unemployment is still more than twice the amount during the peak of the Great Recession. 

While investors were relieved by the fall in continuing claims, the “momentum still rests with the bulls,” wrote Boris Schlossberg of BK Asset Management. “As we’ve seen with gold, the profit-taking selloffs can be swift and brutal.”

Gold had previously been the darling of many portfolios lately, though it had slid dramatically earlier in the week. By the closing bell, gold futures were priced at about $1,962 per ounce.

Stephen Innes, chief global market strategist at AXI Trader, wrote in an investor’s note that, “at this stage I think it’s unlikely we’ll see gold slide to the low $1,800, and prices could remain supported by the sticky demand around $1,875 to $1,925, similar to last week.”

Another economic indicator disheartened some investors, as the Federal Reserve Bank of Philadelphia’s manufacturing index showed slippage in manufacturing activity compared with earlier in the spring. The monthly manufacturing index dropped 6.9 points to 17.2 so far this month.

“On balance, the firms reported increases in manufacturing employment for the second consecutive month, but the current employment index fell 11 points to 9.0 this month,” the survey states.

While the index is still in positive territory after disastrous outings in April and May, the drop indicates a slowing recovery. That said, manufacturers’ view of the next six months improved slightly, gaining about 3 points to reach 38.8 on the index. 

The double dose of negative economic data could spur Congress to move faster on negotiations for another stimulus bill, with Blue Dog House Democrats reportedly pushing for talks to start up again this weekend in addition to legislation to fund the U.S. Postal Service.

Some economists say economic indicators will only worsen the longer a stimulus package is left on the table. 

In an investor’s note, PNC Financial Services Group Chief Economist Augustine Faucher wrote: “The loss of benefits, reducing household income by about $700 billion a month, could become a drag on the recovery as some consumers are forced to cut back on their spending.”

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