DOJ : Bleed and Buckling
(Fri, 24 July 2020). Dow Jones Industrial Average futures bleed lower with stimulus negotiations in a stalemate and the economic recovery "buckling". At these levels, the broad stock market looks set to close the week at roughly the same place it ended the last one. Unfortunately, the same can`t be said of the economy.
Dow Jones futures point to declines on Friday. The economic recovery appears to be stagnating. Some investors worry it’s “buckling.” More stimulus is on the way – but when? As the Dow Jones Industrial Average (DJIA) awaits the week’s final trading session, stock market bulls find themselves wrestling with the same twin threats that haunted them on Monday: stimulus stalemate and a “buckling economy.”
The stimulus narrative hasn’t budged all that much. Everyone craves a spending package with the word “trillion” attached. The only question is what number will precede it.
Absent any tangible progress in those negotiations – Senate Republicans left Washington for the week and won’t unveil their proposal until at least July 27 – investors have little choice but to wring their hands and fret about what this week’s jobless claims data means for the economy.
Dow fails to bounce back from Thursday’s big loss
That – along with rapidly escalating tensions with China – is what’s on Wall Street’s mind this morning less than an hour before the opening bell. As of 8:58 am ET, Dow Jones Industrial Average futures had declined by 75 points or 0.28% to 26,468. S&P 500 futures edged 0.33% lower, while Nasdaq futures dove 0.83% as the tech sector continued to underperform. At these levels, the broad stock market looks set to close the week at roughly the same place it ended the last one. Unfortunately, the same can’t be said of the economy.
Dow bulls wrestle with an economy that’s ‘buckling’ – or at least leveling off
When the coronavirus pandemic first began to disrupt life in the U.S., investors ignored two consecutive historic spikes in new jobless claims. With the economy shutting down almost instantaneously, everyone knew those were coming. For the next 15 weeks, bulls cheered figures that would have put ice in economists’ veins before the pandemic. New filings might still be above 1 million, but at least they’re trending down! That changed on Thursday.
Jobless claims rose for the first week in 16. According to Bloomberg, this could represent a tipping point for market sentiment. The official numbers have begun to confirm what many Americans feel in their bones: the economy is buckling once again. While economist Mohamed El-Erian didn’t go that far in his analysis, he said it’s evidence the U.S. is not experiencing the V-shaped recovery analysts hoped to see.
For the stock market, stimulus negotiations could be a bumpy ride
The deteriorating economic recovery makes next week’s stimulus negotiations even more high stakes. So why are members of Congress heading home to their districts for the weekend rather than staying in Washington to hash out a deal? David Bahnsen, the chief investment officer at the Bahnsen Group, says that for Senate Republicans, that’s all part of the plan.
Democrats muscled a $3.4 trillion bill through the House during a party-line vote in May. They’ve stuck by the 1,815-page HEROES Act as their opening offer in the two months since. Senate Republicans say they’re shooting for a package much closer to $1 trillion. They’re keeping their cards close to the vest about what the proposal entails.
The risk is that, by pushing off the negotiations until the last minute, legislators left themselves little margin for error. That’s borne out by the GOP’s inability to finalize their proposal in time to unveil it on Thursday, their original target date.
There’s little doubt a deal will get done. But much like the economic recovery itself, it could be a bumpy ride.
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