U.S. markets and stock ETFs retreated Thursday after new unemployment claims unexpectedly rose, adding to fears that the resurgence in coronavirus infections could weigh on the economic recovery.
On Thursday, the Invesco QQQ Trust (NASDAQ: QQQ) was down 2.0%, SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) dropped 0.6%, and SPDR S&P 500 ETF (NYSEArca: SPY) fell 0.7%.
New unemployment benefit claims increased 1.4 million for the week ended July 18, the Wall Street Journal reports.
The updated data also revealed unemployment rolls dipped in recent weeks, indicating that new hiring and employers recalling workers have helped offset layoffs, but another round of restrictions on business activity across many areas of the country threaten to impede the recovery process.
“The U.S. economy is starting to reabsorb some of those workers, but if you look at those moving into permanent unemployment, that gets more worrying,” Edward Smith, head of asset allocation research at Rathbone Investment Management, told the WSJ. “The U.S. consumer is still a really important part of demand all over the world.”
Investors are now hoping that another Covid-19 relief package could provide further support for a flagging economic recovery. Senate Republicans and the White House resolved issues over a fifth relief package, laying the groundwork for negotiations with Democrats over the new $1 trillion package. Many hope lawmakers can reach an agreement before the expiration of enhanced unemployment benefits at the end of July.
“It’s looking more like they will agree on some type of extension,” Andrew Hunter, senior U.S. economist at Capital Economics, told the WSJ. “The data suggests there is an increasing need for fiscal support over the last few weeks.”
Optimism over a potential Covid-19, fiscal stimulus measures, improving economic data and better-than-expected corporate earnings have helped buoy sentiment and kept markets going. Investors, though, may be brushing off the ongoing risks associated with the coronavirus.
“Because of the perception that there will continue to be a further commitment to the market, you’re seeing a market that is continuing forward despite a level of rationality from many savvy experienced people who think this is stone cold crazy,” Eric Schiffer, chief executive officer of the private equity firm, the Patriarch Organization, told Reuters. “We are at an inflection point and given how the health conditions may impact business – which was not considered to the extent it is today – the market is on the far shakier ground than investors believe.”
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