Wall Street Close: US stocks losing traciton ahead of Nonfarm Payrolls

  • Dow Jones unofficially closes down 6.45 points, or 0.02%, at 26,263.44.
  • NASDAQ unofficially closes down 74.82 points, or 0.77%, at 9,608.10.
  • S&P 500 unofficially closes down 12.65 points, or 0.41% , at 3,110.22.

US benchmarks ended mixed on the last day before the crucial jobs report from the US. The outlook for the economy is fickle and investors wearing their rose-tinted glasses assessing a promising outlook for the US economy were unable to ignore some of the cracks in the recent data and signs of a swell of COVID-19 on the horizon. 

Consequently, the Dow was off its highs and ended up by around just 12 points, or less than 0.1%, near 26,282. The S&P 500 lost 11 points, or 0.3%, to close near 3,112 while the Nasdaq shed around 67 points, or 0.7%, to finish at 9,615. 

Rising risk appetite outside of the US helped to buoy stocks on Wall Street, to begin with. However, a late-session sell-off took prices to test below the prior session’s lows as the jobs data is expected to paint a telling picture of the economy in the form of Nonfarm Payrolls.

At the same time, as many as 20 states where new coronavirus cases are increasing over the past five days weighed on investor minds.

Meanwhile, the ECB delivered another bazooka which had helped to lift spirits in some areas of the financial markets, but not so much in stocks. We had already seen strong gains prior to today’s announcement on the expectations of the package. 

The global equity rally has been spectacular

Analysts at ANZ Bank noted that the S&P 500, for example, is up 38% since its March lows, to sit only 8.2% below its February peak.

Causes of the global rebound are several: a sense that central banks have investors’ backs, huge fiscal stimulus, decidedly unappealing bond yields, and falling daily COVID-19 case numbers in most developed countries. But what’s lacking, on the whole, are decent earnings outlooks as the globe navigates an enormously negative income shock, with forward price to earnings ratios becoming eye-watering. Time will tell.

Investors hit the brakes ahead of NFP

Meanwhile, the longevity of this coronavirus crisis is the key factor here.

While the US stock market’s recovery on prospects of an uninterrupted COVID-19 re-opening has been impressive, can it withstand a protracted economic downturn on the back of a market that can’t replenish jobs for millions of people, in not just the US, but all over the world?

For instance, ahead of tomorrow’s NFP, when we look at recent data and taking the jobless claims that fell this week, they remain extremely elevated considering the US economy is clearly on the re-opening path. In the context of an economy that is re-opening this data is extremely high, especially when viewed against previous recessions.

Also, Los Angeles Times analysis shows that the number of weekly cases in California continues to rise, exceeding 17,000 last week for the first time in the pandemic. California is one of about 20 states where new cases are increasing over the past five days, according to Johns Hopkins University.

The recovery in the jobs sector is unlikely to be swift when factoring in the fear of going back to work in the population all the while there is no cure nor vaccine and cases continue to rise – something to keep in mind heading into Friday’s jobs market. 

Posted in FX