DJIA : Beware of Unemployment Data
(Thu, 6 Aug 2020). Ahead of the release of new unemployment data, U.S. treasury yields fell. Investors in the stock market are seeking safety in the short-term. As investors turn cold betting on an economic rebound, treasury yields are stumbling toward record lows.
Economists feared worsening unemployment data could cause the economy to further decline. Ahead of the release of new economic data, a growing number of investors are flocking to U.S. treasuries. “Massive” liquidity is a variable that could offset gloomy economic trends in the medium-term. Ahead of the release of new unemployment data, U.S. treasury yields have fallen. Stock market investors appear to be seeking safety in the short-term.
Economists and strategists anticipated a sharp downturn in U.S. GDP. The economy contracted 32.9% annually in the second quarter—a figure that surprised very few. But the abrupt increase in jobless claims has investors worried. There are concerns that consumer spending could decline, leading to a worsening economic downtrend. Such a gloomy trend could eventually cause a stock market slump.
Real Risk in the Stock Market if Unemployment Rate is High
On August 6, Dallas Fed President Robert Kaplan is scheduled to provide a speech. The speech will be followed up with Q2 household debt and credit report. The new economic data and jobless claims could set the sentiment around the stock market for the near-term. The U.S. stock market has rallied in recent months with strong performances from Big Tech. If unemployment data is higher than the expectations of investors, economists say it could trigger a storm of negative factors.
ING Financial Markets’ chief economist James Knightley warned a “triple whammy” of pessimistic factors is incoming. The income squeeze of millions of Americans, which Knightley pinpointed, is getting worse. New reports show six million U.S. citizens are unable to pay their bills. Morning Consult’s chief economist John Leer said people are not able to pay rent and basic necessities. The concerning trend could slow down the stock market, especially considering that it has been primarily retail-driven.
The Economy is Getting Worse, and Investors are Preparing For It
As the economy declines, incomes stagnate and joblessness rises, the outlook on equities doesn’t look promising. The multi-trillion-dollar stimulus package, record-low interest rate, and relaxed market conditions are buoying the stock market. Yet, economists and investors are turning cautious toward the near-term trajectory of the economy. It remains unclear whether the Fed’s optimistic policies will offset wavering investor sentiment. Investors are seemingly anticipating for the New York Fed’s credit and household debt report to analyze near-term market sentiment. A variable that could fuel newfound appetite for the stock market in the medium-term is global liquidity. Massive global liquidity to hit markets NEXT year. Chart suggests equity market at risk of correction in Q4, then single greatest rally of our lifetime in 2021. Enormous speed and near vertical price increase possible.
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