US stocks shook off awful unemployment data this afternoon to climb higher as traders pinned their hopes on a $2 trillion economic stimulus package.
The Nasdaq rose 3.5 per cent by 4.30pm, while the Dow Jones climbed a whopping 4.9 per cent. The S&P 500 posted a large rise of 4.3 per cent.
Yesterday the S&P 500 and Dow climbed over one per cent and two per cent respectively. That followed doubts over how quickly the $2 trillion aid would take to arrive. The doubt trimmed big early US stocks gains.
But today investors were forced to contend with a huge jump in US unemployment numbers.
Jobless claims rocketed from 282,000 to 3.3m in the week to 21 March, official data today showed.
Edward Moya, an analyst at trading platform Oanda, said this demolished a prior record high of 695,000 new claims back in 1982.
“The [US stocks] reaction was somewhat limited considering the magnitude of the headline number, because some individual states were providing daily updates,” Moya added.
Worse unemployment to come
“Unfortunately, the job situation is expected to get much worse as the virus fallout intensifies throughout America.
“Many states also reported that their filing systems crashed due to excessive volumes, so it seems reasonable to expect a few more historic weekly jobless claims surges.”
He warned total US unemployment claims could hit 16m in the next few weeks.
Swissquote Bank’s senior analyst, Ipek Ozkardeskaya, suggested US stocks soared this afternoon in part because of the huge jump in unemployment.
“US equities rallied as the cataclysmic figures increased the probability of the $2 trillion rescue package being quickly approved,” Ozkardeskaya said. “The question is what is left for the markets to hope for once this goes down the line as well.”
“This record-shattering number is more than a reminder of the huge economic sudden stop that’s already paralysing the US economy,” Mohamed El-Erian, chief economic adviser to Allianz, told the Financial Times.
“It’s also a very loud alarm to governments around the world of the massive economic, social and financial wave that has started to hit the global economy. Unfortunately, [it] has more to run,” he added.
Coronavirus stimulus sustains US stocks
The US $2 trillion economic stimulus cleared overnight in the US Senate and kept investors looking beyond today’s figures. The stimulus includes $250bn for personal cheques of up to $1,200 per person.
And parents will receive $500 per child, though the money may not become available until May.
John Forsythe, chief global strategist at BrightSphere Investment Group, said today marked the end of the strong US jobs market.
“Investors are bracing for the fallout of this week’s growing wave of stay-at-home orders … and their knock-on effect upon the broader economy,” he added.
“They’re worried that the US is at the start of an unprecedented wave of sharply rising unemployment.”
Jay Powell vows US won’t run out of ammo
US stocks also surged in response to Federal Reserve boss Jerome Powell’s pledge to take more action to shore up the US economy in the face of coronavirus,
“Those who thought that the passage of the $2 trillion stimulus might be time to sell the news have been caught out, with an impressive rebound across Wall Street,” Chris Beauchamp, chief analyst at online trader IG, said.
Powell said in a live TV interview that the US may already be in recession. But he added that the Fed would not “run out of ammo” in its bid to prop up the economy.
WhUS President Donald Trump wants to kick start the US economy by Easter. But Powell gave no indication how long its shutdown of shops and businesses would last.
“The very fact of the Fed chairman appearing on national TV acting as a calming factor,” Beauchamp said.”Along with his pledge that the Fed would continue to find the ammunition it needed.”
Powerll made a similar pledge to one from Bank of Engkland governor Andrew Bailey today.
While the Bank stuck to record rate cuts to a historic low of 0.1 per cent, Bailey also did not rule out further action to support the British economy.
However, Beauchamp warned a slow recovery from coronavirus could dent UK and US stocks.
“If lockdown measures have to stay in place for much longer than anticipated, then a swifter revival of the stock market seems very much in doubt,” he said.
But the FTSE 100 gave up gains today after America’s unemployment data, in contrast to US stocks. London’s index was only half a per cent up shortly before its close.
The Bank of England took no further action at a meeting today after slashing rates to historic lows last week. But the UK’s central bank said it was ready to do more to combat the UK’s coronavirus economic hit.
Coronavirus could hit jobs worse than 2008
AJ Bell investment director Russ Mould said coronavirus could be even worse for US stocks and world employment than 2008 due to the lockdowns.
“Even during the financial crisis people still bought clothes, frequented restaurants and cafes, and went out to work,” he said. “Lockdown conditions are bound to lead to massive drops in output – the question is how long they might last?
“Notably Brent crude oil, still the engine of global economic growth, is back below $30 per barrel.”