Stocks are wobbling, but will they fall?
That’s the question investors are asking this morning after yesterday’s poor performance, in which the market opened flat but ultimately finished for a significant loss.
Today, the major indexes opened once again for no gain, immediately dipped, and then got back to level by noon.
For a few nervous minutes, though, it looked like another bad day was in the cards. Bulls will need to hold on for the next few hours to avoid a repeat performance of the trading session prior.
This time, new unemployment data caused the initial drop. Weekly jobless claims clocked-in at 853,000 last week, surpassing the Dow Jones estimate of 730,000 by a wide margin.
And while that’s nothing out of the ordinary for 2020, initial unemployment filings haven’t exceeded 800,000 since October. It’s a signal to some analysts that weekly jobless totals are going to continue rising.
“Given the recent behavior of initial claims, we will likely see further increases in continuing claims going forward,” Thomas Simons, money market economist at Jefferies, said.
“Evidence has been building indicating that claims hit an inflection point in early November due to rising Covid case numbers and forced the imposition of social distancing policies that really hurt the service sector of the economy.”
Glassdoor senior economist Daniel Zhao shares a similar opinion, noting that the most recent batch of jobless claims resembles the data from 2007-2009.
“This recent surge suggests that claims are not just stagnating, they’re actively worsening,” Zhao said.
“The surge in initial claims is especially concerning when claims are still above levels near the peak of the Great Recession.”
And unlike the worse-than-expected November jobs report, which only galvanized bulls hoping for a bigger stimulus package, today’s weekly unemployment numbers have cast a pall over the market. If a major, lockdown-induced recession is coming, not even a heap of government stimulus would be able to save equities over the next few months.
Still, if the U.S. can fully re-open on the heels of a working vaccine, long-term prospects seem bullish.
Shorter-term, however, the market appears significantly overbought. Over 90% of the stocks listed on the NYSE are trading above their 200-day moving average. The sheer number of companies above that indicator is somewhat concerning given the uncertainty facing the economy.
That has professional traders wondering whether they should start taking profits or remain long in the hopes of catching additional returns.
“Timing the market is not always well-advised and paring back can miss out on some gains the next two months, but after such good returns in clearly a terrible fundamentals year, I think taking some profits and moving to cash, not bonds, makes some sense here,” said Commerce Street Capital CEO Dory Wiley.
If other money managers follow Wiley’s lead, Wall Street’s irrational exuberance may finally come to an end. Reports from Goldman Sachs and JPMorgan showed, back in November, that Wall Street traders had grown historically bullish.
It was a shocking revelation to many traders, and enough for Bank of America’s investment chief to recommend exiting growth stocks altogether.
With Congress set to adjourn in a few days, the market could continue slipping, and stocks would likely plunge in the event that lawmakers can’t strike a relief package deal.
We’ll see what happens, but for now, things don’t look all that encouraging. And for bulls, that may be reason enough to sell before Congress breaks fro Christmas.
Potentially kicking off a broader – and bigger – equity slump.
