Airlines Could Be In Focus Today After Senate Passes Economic Stimulus Bill

The weekly jobless claims figures aren’t always the most closely watched economic data among Wall Street traders and investors. But today’s are a different story.

This morning, the Department of Labor said 3.28 million people filed initial claims for unemployment benefits in the week ending March 21. That record-breaking number is far above the 665,000 peak during the Great Recession and comes as the coronavirus forces many Americans out of work.

Prior to the data’s release, economists had been expecting the largest one-week surge in history—of 1 million to 4 million unemployment claims, according to CNBC—as restaurants, retail stores, and the leisure and hospitality industry have been especially hard hit by coronavirus-related closures. 

It’s arguable that much of the unemployment situation had gotten baked into the cake in recent weeks during the market’s pronounced tumble. But the bounce we saw on Tuesday and Wednesday did give the market more room to tumble for anyone who might have thought the gains may have been overdone given the continued seriousness of the COVID-19 situation.

Equity index futures were already down in anticipation of a huge surge in unemployment claims even after the Senate passed a mammoth economic relief package. 

But there also may be a sense among investors that they expected a bad number, got it, and can now factor that into the repricing of stocks that’s been going on for weeks now. Even though the number is disappointingly high, it removes a certain amount of uncertainty from the market.

And as traders and investors adapt more and more to the new normal that COVID-19 has brought, we may be seeing a trade range starting to develop where we’re not hitting limit up or limit down but hashing out an equilibrium of sorts. That could be a precursor to the market forming a bottom.  

In other news, Federal Reserve Chairman Jerome Powell added to the drumbeat of talk about an economic contraction in the United States, saying on the Today show that “we may well be in a recession.” But he added a note of encouragement, saying that there “is not anything fundamentally wrong with our economy.” (See more about recession talk below.)

Two In a Row

Yesterday marked the first day of consecutive gains for the S&P 500 Index (SPX) and Dow Jones Industrial Average ($DJI) since the coronavirus-related selling started in earnest in the middle of last month.

All three of the major U.S. indices were solidly in the green for much of the day in anticipation that the Senate would soon pass a $2 trillion stimulus package. But gains in the SPX and $DJI were tempered heading into the close, and the Nasdaq Composite Index (COMP) closed in slightly negative territory, on news of a potential holdup to the bill’s passing the Senate.

The Senate did end up passing the package late Wednesday, authorizing small business loans and direct payments to individuals, among other measures. The bill now heads to the House.

While it won’t alleviate all the uncertainty about the coronavirus, the bill aims to help businesses and workers with resources to continue the social distancing much of the country is experiencing.

Silver Lining For Micron

After the bell yesterday, Micron Technology, Inc. MU gave investors some encouraging news, at least from the tech sector. The chipmaker reported stronger-than-expected earnings and revenue for the quarter it just concluded. 

Perhaps more encouragingly, MU forecast revenue for the current quarter would exceed previous analyst estimates amid the chip-enabled work-from-home boom during the pandemic. MU’s shares were up this morning ahead of the open.

MUs results are a reminder that some segments of the market might be able to weather this pandemic better than others. Aside from chipmakers, real estate investment trusts that own data centers and cell phone towers come to mind, as do grocery store chains and drug companies working on treatments for COVID-19.

But those bright spots—or at least less-dark spots—are against a backdrop of a stock market that is substantially lower than where it was a month ago. And uncertainty about the pandemic will likely continue to linger.  

CHART OF THE DAY: LOWER VIX NIXED. Even though the $DJI and SPX were able to end on a positive note for two days in a row and the COMP wasn’t down too much, volatility ended Wednesday at an elevated level. Wall Street’s main fear gauge, the Cboe Volatility Index(VIX) finished the day on a higher note near 64. For some of Wednesday, it looked like the VIX might finish lower. But concerns about a potential holdup to the Senate’s passage of a stimulus package jangled nerves toward the end of the session. Data source: Cboe Global Markets. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.  

 

The New Economic Normal: For many of us, it might seem like a lifetime ago that we could go out to restaurants, grab a drink with friends, or pack the kids off to school. Now, we have the new (but hopefully temporary) normal. There’s a similar situation with the economy. Prior to the COVID-19 pandemic, the U.S. economy seemed to be humming along fairly well. Now, there’s a lot of talk about the likelihood of a recession. For a sense of the stark contrast in the economy before the coronavirus and now, take a look at the latest GDPNow numbers from the Atlanta Fed. The latest estimate, posted yesterday, showed a forecast of 3.1% annualized growth for the first quarter. That lofty figure is made possible by backward-looking data that might only capture a little bit of the virus impact from the tail end of February. “It does not anticipate the impact of COVID-19 on forthcoming economic reports beyond the standard internal dynamics of the model,” the Atlanta Fed says on the GDPNow site. Still, it’s a good reminder of how strong the economy was looking before the pandemic and what it might return to once the nation recovers.  

Silver Lining But No Cloud Nine: During times like these, it doesn’t hurt to look for silver linings as long as we remain realistic. One such potential encouragement is that it’s arguable that a domestic recession was in the offing regardless of whether the coronavirus pandemic happened or not. Whether it was the 8th or 9th inning of the economic expansion is certainly up for debate, but it does seem likely that we were getting late in the game. Recessions are a normal part of the business cycle. Now, based on wide ranging economist predictions, we just have to see whether we’ll get one quarter of contraction this year, or two, which would make for the technical definition of a recession. How deep is also a concern.

Not Just an Economic Recession: S&P Capital IQ consensus estimates are projecting a recession in earnings per share of SPX companies, based on forecasts of -4.2% growth in the first quarter and -6.9% growth in the second quarter, investment research firm CFRA said in a note. Even though the stock market isn’t the economy, the two are linked. “History reminds us that three out of every four EPS recessions have morphed into economic recessions,” CFRA said. The firm cites Action Economics’ forecast of a 0.5% GDP contraction in the first quarter and a 6% fall in the second quarter and notes that the April jobs report is projected to mark a near 5.1 million drop in non-farm payrolls. “Should investors conclude that things couldn’t get any worse, maybe they can take heart that the worst is likely being factored into share prices,” CFRA said. There’s another silver lining for you.