Stocks gave up the ghost on Friday after a week of gains and losses. Investors should expect more of the same as they could see even greater volatility ahead.
Take your pick. Was it the announcement that President Trump was diagnosed with COVID-19 that sent stocks tumbling at the end of the week? It could have been that the September employment gains were a negative surprise, indicating a potential rolling over of the economy. But if you are looking for reasons, add in the disappointment among investors that there was no new stimulus deal forthcoming from Washington.
The president’s coronavirus infection, while hopefully mild, could be complicated thanks to his age and his obesity. If there are any silver linings in this announcement, it might be that more people will take the advice of the medical experts and not discount the seriousness of catching COVID-19 as just more of the media’s “fake news.”
Every media outlet in the world is already providing you with a long list of “what if” scenarios, so let me just say that this event has added to the uncertainty investors are already dealing with this month.
Take Friday’s monthly, non-farm payroll number for example. It was lower than investors hoped, coming in at 661,000 new jobs, versus 859,000 expected, which was down by more than half from the 1.489 million jobs gained in August. An observer can only conclude that the economic picture is darkening. To make matters worse, tens of thousands of Americans have just lost their jobs as blue chip companies began layoff announcements this week. Few sectors were spared.
Airlines have already announced 50,000 job cuts beginning October 1, unless a new stimulus deal was announced. It wasn’t. Other companies are sending out pink slips regardless of any progress that may come in Washington. Disney, Exxon, Royal Dutch Shell, Allstate Corp. and Goldman Sachs are just a few of those reducing staff. Investors believe there are more to come.
While service jobs in industries such as restaurants and the hospitality area took the brunt of the layoffs at the beginning of the pandemic, this time around analysts expect office and managerial jobs, plus other higher-paid positions are at risk.
At first, many companies had delayed cutting employees due to the government’s fiscal rescue efforts six months ago. However, now that no new rescue program is in the offing (as of today), and the coronavirus is still present (witness our first family’s present state) while continuing to rebound in more than 25 states, time has run out.
But wait a minute, you might say, didn’t we gain jobs in September? Aren’t economists telling us that the economy is rising? Yes, but an additional 837,000 other people filed for first-time unemployment just this week. It is true that there is a rebound, but the recovery is uneven. It is not lifting all boats at the same time–far from it.
The Institute for Supply Management’s ISM monthly manufacturing purchasing managers’ index (PMI), for example, declined last month to 55.4 versus 56.0 in August. Some sectors and companies are doing just fine. Others are sucking wind.
Just examine your own activities. How often are you eating out? What are your travel plans? I bet they don’t include flying. Have you made any big-ticket purchases recently? Yet, you probably bought another computer, ordered things from Amazon, or added another streaming service to your home entertainment system. People are renovating homes, adding outside improvements, even moving to the country. The point is that the pandemic has dislocated supply lines, changed consumer preferences, and changed the make-up of the economy’s winners and losers.
As for the markets, I hope you weren’t watching the averages too closely, or you may have gotten vertigo. Every statement from the stimulus negotiators from both parties moved markets up and down throughout the week. Clearly, the pressure was on to make a deal, especially if you believe that most Americans primarily vote their pocketbook, but as of Friday it has been a big “nothing done.” Combined with everything else, is it any wonder the market was set back on its heels?
But let us not give up hope just yet. Clearly, the latest and last employment data before the elections may lead to some agreement between the two parties on a second stimulus package.. In a weird way, there may be a newfound willingness to come together, triggered by the danger to the President’s health. Besides, if no new stimulus actions are passed, it could be that hundreds of thousands of newly unemployed voters will go to the polls in a bit of a tiff. It is up to the reader to decide which party that hurts more. Let’s see what next week brings and, in the meantime, stay invested.
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