Dow ends 360 points lower but Nasdaq notches 26th record of 2020 as investors find safety in tech


U.S. stocks closed mostly lower Thursday, but off the low of the day, as investors sought safety in technology and tech-related investments amid rising cases of coronavirus in states like Arizona and Florida.

A 7-2 Supreme Court decision ruling that a New York prosecutor could have access to President Donald Trump’s tax returns, also was parsed by Wall Street.

The Dow Jones Industrial Average closed 361.19 points, or 1.4%, to end at 25,706.09, but had been down by as many as 544 points at the day’s low. The blue-chip index was weighed down by component Walgreens.

The S&P 500 index lost 17.89 points, or 0.6%, at 3,152.05, after touching an intraday low at 3,115.70. The Nasdaq Composite Index resumed its advance following a stint in negative territory, with the tech-laden index closing up 55.25 points, or 0.5%, at 10,547.75, marking its second record in a row and its 26th of 2020.

The Nasdaq-100 index
NDX,
+0.82%
,
consisting of the largest companies within the Nasdaq by market value, closed up 0.8% at 10,754.59, while the small-cap Russell 2000 index
RUT,
-1.99%
,
more sensitive to the economic outlook, finished off 2% at 1,398.92.

What’s driving the market?

It was a bumpy ride for stocks Thursday, with investors clutching for a handful of technology stocks amid resurgent concerns about the shape of the economic recovery from the COVID-19 pandemic that continues to wreak havoc on the domestic economy.

Investors are betting that large-cap tech names will be the clear winners in the aftermath of the viral pandemic, supported by a heavy dose of stimulus by the Federal Reserve and the U.S. government.

Stocks may have taken a leg lower late-morning after the Supreme Court ruled 7-2 that the president lacks immunity to withhold his tax returns from prosecutors. It was a bit of a “knee-jerk” reaction, said Joe Saluzzi, co-manager of trading at Themis Trading.

“Markets are a bit more friendly to the president and his policies,” Saluzzi said in an interview, “so anything that’s seen as negative to him might provoke a tiny reaction. “

The moves come after a report on weekly jobless claims showed that another 1.3 million Americans filed for first-time employment benefits in the most recent week, below the 1.4 million forecast in the MarketWatch survey, and down from 1.43 million in the prior week.

That keeps intact a decelerating trend since peaking last March, but still marks the 15th straight week of claims of at least a million.

“Initial claims remain very high and the improvement since late March has almost come to a halt,” wrote analysts at UniCredit in a daily research note. “The re-imposition of restrictions in several states facing growing numbers of new COVID-19 cases could have already had an effect,” the analysts said.

The jobless claims report came about a week after the monthly nonfarm-payroll report showed that U.S. economy regained 7.5 million jobs in May and June. That pales compared with the 22 million jobs lost during the first two months of the pandemic.

Against that backdrop, infections derived from the novel strain of coronavirus haven’t abated. Bloomberg News reported that Florida saw records in both new hospitalizations and deaths, while Arizona added 4,057 new cases.

Overall, the U.S. reported more than 58,000 new cases on Wednesday, according to data compiled by Johns Hopkins University, down slightly from the previous day. The country’s death toll stands at more than 132,309.

During a podcast with the Wall Street Journal on Wednesday, Dr. Anthony Fauci, the foremost expert on infectious diseases in the U.S., said that we remain in the throes of the first wave of the deadly pandemic.

“We have never gotten out of the first wave,” he said. “So I wish we would stop talking about waves and just look at the reality of where we are right now. ”

Indeed, cases in California, Texas and Florida, hot spots in this resurgence, also hit new daily record highs on Wednesday.

That said, Florida Gov. Ron DeSantis has encouraged Walt Disney Co
DIS,
+0.12%
.
to proceed with its phased plan to reopen its theme parks starting on Thursday and through July 15. In New York, indoor shopping malls outside of New York City are eligible to reopen Friday, New York Gov. Andrew Cuomo said.

Meanwhile, Treasury Secretary Steven Mnuchin told CNBC during an interview on Thursday that the Trump administration supports a narrower aid package for Americans hurt by the pandemic. Mnuchin said that the White House backs a further extension of the Paycheck Protection Program, which has been extended to Aug. 8, and stimulus checks for individuals but at lesser level than the initial phases of recovery aid.

“The market has priced in the reality that virus is something we have to live with, mortalities are under control, and we’re not going back to a full societal lockdown,” said David Bahnsen, chief investment officer of Newport Beach, Calif.-based The Bahnsen Group, with over $2.25 billion in assets. 

“The market’s much more focused on the Fed,” Bahnsen said in an interview, “which is not necessarily a good thing but it’s sure hard for the market to form an opinion against risk assets with the liquidity and tight spreads that the Fed has produced.” 

Check out: Coronavirus tally: Global cases of COVID-19 top 12 million; 549,846 deaths and 38 U.S. states still see rising cases

Which stocks are in focus?

  • Shares of Bed Bath & Beyond
    BBBY,
    -24.49%

    sank 24.5% after the retailer said it would close 20% of its stores.

  • U.S.-listed shares of Hexo Corp.
    HEXO,
    +5.93%

    rose by about 6% Thursday, after the Canada-based cannabis company said it would start selling medical cannabis in Israel, marking the first time its medical cannabis products will be available outside of Canada.

  • Shares of Allegiant Travel Co.
    ALGT,
    -7.68%

    slid 7.7% even though the company said its bookings averaged $4 million a day, “exceeding” its expectations.

  • Tesla Inc.
    TSLA,
    +2.07%

    shares powered 2.1% higher on the back of a Wedbush analysis suggesting the car company may see a “snapback of demand.”

  • Shares of Harley-Davidson Inc.
    HOG,
    +0.62%

    rose 0.6% Thursday after the motorcycle maker disclosed that it will cut about 14% of its workforce as part of a restructuring, and said Chief Financial Officer John Olin is stepping down, effective immediately, after 10 years in the role.

  • Walgreens Boots Alliance
    WBA,
    -7.75%

    stock closed down nearly 8% after the pharmacy chain said it would cut 4,000 jobs.

  • Shares of Wells Fargo & Co.
    WFC,
    -2.07%

    fell 2.1% on reports that the bank is seen cutting thousands of jobs.

How are other assets performing?

West Texas Intermediate U.S. crude futures for August delivery fell by $1.28, or 3.1%, to settle at $39.62 a barrel on the New York Mercantile Exchange, as virus concerns dogged demand on the New York Mercantile Exchange. In precious metals, August gold futures
GOLD,
-0.46%

fell $16.80, or 0.9%, to settle at $1,803.80 an ounce, after hitting its highest level since Sept. 2011 on Wednesday.

The 10-year Treasury note yield was down fell 3.6 basis point to 0.617%, around its lowest level since May 14. Bond prices move inversely to yields.

The greenback rose 0.4% against a basket of its major rivals, based on trading in the ICE U.S. Dollar Index. 

In European equities, the Stoxx Europe 600 index closed 0.8% lower, and London’s FTSE 100 fell 1.7%. In Asian markets overnight, China’s benchmark CSI 300 Index gained 1.4%, extending its weekly rally. Hong Kong’s Hang Seng Index rose 0.3%.

See also: ‘The market isn’t pricing in an all-clear on the economy,’ say BofA analysts, who say the S&P 500 will end the year at 2900



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Soaring demand for federal jobless benefits points to fresh fissures in the U.S. economy


The number of unemployed people collecting jobless benefits through a temporary federal-relief program has exploded in the past month to more than 14 million, suggesting the U.S. labor market is facing a fresh set of problems.

After a small decline in mid-May, applications for benefits filed through the federal Pandemic Unemployment Assistance program have soared 53% to 14.4 million as of June 20 from 9.37 million a month earlier. Federal continuing claims are reported with a two-week lag.

Read:Jobless claims fall to four-month low of 1.31 million in early July, but layoffs still high

The increase in federal filings has mostly offset a gradual decline in continuing claims paid out by the states through the traditional unemployment compensation program. They’ve fallen to 16.8 million as of June 27 from a pandemic high of 22.8 million in early May.

All figures are unadjusted for accuracy and an apples-to-apple comparison. The government’s seasonal adjustments don’t apply with federal claims since they did not exist prior to the viral outbreak.

The portrait of the coronavirus-infected labor market looks worse if all continuing jobless claims are combined. Almost 33 million people were receiving benefits as of June 20, up from 31.5 million in the preceding week, according to Labor Department data.

By contrast, the Bureau of Labor Statistics’ normally more reliable monthly employment report indicated 17.8 million people were unemployed in June.

The gap between weekly continuing jobless claims and the monthly unemployment numbers has left a big — and inexplicable puzzle — for economists. Why aren’t all these people telling the Labor Department they are unemployed?

Read:Jobless claims tell us 32.9 million people are unemployed, but is it really that bad?

“It tells me one of two things: Either the claims are wrong or the unemployment figures are wrong,” said Joel Naroff of Naroff Economic Advisors. “There is no other way I can explain that.”

Which numbers should they trust?

Many say it’s hard to fully trust either number given the devastation wrought by a once-in-a-century pandemic and the government’s flailing response to keep track of it all.

State unemployment offices, for example, have been overwhelmed by more than 55 million new claims in the past several months.

Many were also understaffed or relied on ancient technology, a problem compounded by the introduction of a federal relief program that loosened eligibility standards. For the first time ever the self-employed such as mom-and-pop businesses, Uber drivers and other “Gig” workers could get compensation.

It’s possible, economists say, that many federal claims were filed weeks or months ago and are just being reported now. Most states struggled to graft the federal claims program onto their state programs.

Read:U.S. regains 4.8 million jobs in June. Is rehiring poised to slow?

Whatever the case, the more than 14 million people receiving federal benefits would not have been able to collect a dime before the pandemic since they do not contribute to the joint state-federal compensation fund.

Those getting relief under the federal law can get benefits through the rest of the year, but a separate government bonus of up to $600 for each unemployed worker is set to expire at the end of July.

Some economists think the extra benefits may have inflated the claims figures because many workers earn more from unemployment than what their jobs paid. There’s also been scattered reports of workers declining to go back to their jobs because of both safety concerns and the generosity of government benefits.

“The number of people collecting benefits is roughly double the number of people telling the BLS that they are unemployed. Something is fishy here,” wrote Stephen Stanley, chief economist of Amherst Pierpont Securities. “My inclination is, unfortunately, to largely ignore these data until the dust clears a little more, which is a shame because we need timely data now more than ever.”



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Underneath the global stock market’s impressive rebound, investors still doubt prospects for V-shaped recovery, says Morgan Stanley


Don’t believe the hype that markets have baked in a V-shaped recovery.

Analysts at Morgan Stanley note the sharp run-up in stock and corporate bond markets worldwide since March has led many to conclude that over-optimistic investors have already priced in a swift recovery from the coronavirus-driven recession.

But in a Wednesday note, they argue that there’s plenty of ways financial markets are reflecting a more bearish investor than the impressive rebound in risk assets might imply.

“If investors expect a robust economic bounceback, they have an odd way of expressing it,” said the team of Morgan Stanley’s cross-asset strategists led by Andrew Sheets.

Since plumbing its March low of 2,237.40, the S&P 500
SPX,
+0.19%

is up more than 40%. The Dow Jones Industrial Average
DJIA,
-0.01%

had also gained around 40% since touching its March nadir of 18591.93. Both large-cap indexes were on track to record modest gains on Wednesday.

In global equities, an exchange-traded fund
ACWI,
+0.22%

tracking the MSCI All Country World Index, a stock-market benchmark composed of equities from dozens of developed and emerging markets, was up nearly 44% from this year’s bottom.

Sheets lists out several ways markets actually reflect a deeper pessimism about prospects for a V-shaped recovery.

  • The yield curve remains flat. The spread between the 2-year note and the 10-year note, a gauge of the curve’s slope, stands at 49 basis points.
  • Long-term bond yields in the U.S. and Europe are near historic lows. The 10-year Treasury note yield
    TMUBMUSD10Y,
    0.654%

    is trading at 0.65%, while the 10-year German government bond yield was at negative 0.48%.

  • Investments sensitive to expectations for economic growth are underperforming. Shares of larger companies were outpacing their small-cap equities.
  • Higher rated investment-grade debt are offering much scantier yields than the lowest rated investment-grade corporate bonds.
  • Growth stocks are trading at historically expensive levels compared to their value peers.

“Needless to say, all those represent wagers against a strong recovery, and instead, on a world where growth remains weak and uncertainty remains high,” he said.

Sheets conceded there has been a partial unwind of these longstanding trends since risk asset prices slid to their March bottom, with inflation expectations starting to rise, yield curves beginning to steepen, and equities in growth-sensitive areas playing catch up.

Even so, “valuations are still a long way from implying a normal recovery, and instead reflect a market that remains concerned about long-term growth,” he said.



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Argentina debt deal hopes survive bondholder group blow By Reuters


© Reuters. FILE PHOTO: FILE PHOTO: Argentina’s economy minister, Martin Guzman, speaks at Congress on the country’s economic situation and debt plan ahead of the meetings with the International Monetary Fund officials who are traveling to the country, in B

By Marc Jones

LONDON (Reuters) – Analysts kept faith that Argentina would be able strike a debt deal with its creditors on Thursday, after the most prominent group of funds had dismissed the government’s “final” offer as only a good starting point.

The Ad Hoc and Exchange bondholder groups, which between them own almost a third of the $65 billion of debt Argentina wants to restructure, said that though they didn’t accept the latest proposal, it did provide a basis for “constructive engagement”.

Argentina’s Economy Minister Martin Guzman, who has led the negotiations, responded by saying there was “clearly” no room to improve the country’s “maximum effort”, but followers of the long-running saga weren’t giving up hope.

“I think they are getting closer to a deal and I think they will reach it,” said North Asset Management’s Peter Kisler, who holds Argentina bonds but is not part of any of creditor group.

“The creditors are trying to extract as much as they can. It doesn’t cost them anything to push for more especially as there is bit of time left,” he added, referring to Argentina’s latest offer being on the table until at least early August.

Bond prices have risen from around 20 cents on the dollar as negotiations have continued in recent months, but as they approach 50 cent on the dollar it could be time to think about potentially cashing in, Kisler said.

“They could go to 60 cents maybe but the risk-reward gets more difficult once you get above that (50 cents) level.”

Another of the bond groups, the Argentina Creditor Committee, which includes funds such as Greylock Capital and GMO is still to give its view, but most focus remains on the Ad Hoc and Exchange groups which contain the likes of BlackRock (NYSE:), Fidelity, Pimco and Ashmore.

Carlos de Sousa, Lead EM Economist, Oxford Economics told Reuters that bondholders still had concerns about a potential “Pac-Man” strategy where the government would try to gobble up bonds in successive restructurings rather than in one clean swoop.

“The discussion is not only about a few more cents on the dollar. That said, our debt sustainability analysis supports Argentina’s statements that the new offer is the country’s maximum effort,” de Sousa said.

“In the sense that, Argentina would risk falling again on an unsustainable debt path within a decade if they offer significantly more.”

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Jobless claims tell us 30 million people are unemployed, but many doubt it’s that bad


What the heck is really going on in the labor market? Are 30 million Americans unemployed? Or is it 17 million? Are companies bringing back millions of workers? Or laying even more people off?

It’s hard to get a clear answer from the government’s two main tools to assess the labor market. Weekly jobless claims and the monthly employment report appear to tell very different stories.

Read:U.S. regains 4.8 million jobs in June. Is rehiring poised to slow?

Consider jobless claims. Although they have fallen from a peak of nearly 7 million in late March, more than 1 million new applications for unemployment benefits are being filed each week. And that doesn’t even include workers who filed through a temporary federal relief program.

Economists polled by MarketWatch predict an additional 1.4 million new claims were filed through the states in the week of June 28 to July 4.

See: MarketWatch Economic Calendar

Perhaps worse, the number of people receiving benefits through all state and federal programs has hovered near 30 million from the first week of May to mid-June. These are known as continuing jobless claims.

“I am surprised and disappointed the continuing claims have not come down further,” said chief economist Stephen Stanley of Amherst Pierpont Securities. “It doesn’t ring true with everything we are seeing.”

The monthly employment report paints a very different scene.

It shows that the economy regained 7.5 million jobs in May and June, partially recovering some of the more-than 22 million jobs lost during the first two months of the pandemic. A variety of other economic indicators also suggest that more people have gone back to work.

What to believe?

Most but not all economists see the monthly employment report as a more accurate gauge of the labor market. After all, jobless claims only reveal one side of the coin: How many people may have lost their jobs. It doesn’t tell us how many people returned to work.

The monthly employment report, however, presents a net figure, or both sides of the coin: Job gains minus job losses.

“The monthly employment report is a better indicator of the jobs market. It shows real improvement,” said chief economist Gus Faucher of PNC Financial Services. “The claims number is a weekly snapshot, but there is a lot more ‘noise’ in the data.”

But some economists are less willing to believe the feel-good story told by the monthly employment report. James Knightley, chief international economist at ING, said he’d rather trust data on how much the government is shelling out in benefits than a monthly report based on a survey of households.

While he acknowledges jobless claims are more prone to weekly distortions, he said “the fact that the number of people claiming benefits has been around 30 million for six weeks now suggests something distressing has been happening in the labor markets.”

He thinks there’s a good chance new claims will actually rise again soon, specially after a fresh outbreak of coronavirus cases forced some states to reimpose restrictions or delay reopening plans. Companies could also cut more jobs once they realize not all their customers are coming back.

It’s possible, economists say, that both reports tell an accurate story in their own way. The economy could be losing lots of jobs each week, but regaining more of them each month.

Still, it’s hard to square the 30 million people reported as claiming benefits through state unemployment offices with the 17 million people that the monthly jobs report indicates are still unemployed.

Read:Federal Reserve leaders see ‘bumpier’ recovery, slower decline in unemployment

Various explanations abound. The claims report might include multiple applications from the same people, one theory goes. Or perhaps exceedingly generous federal benefits, including $600 extra for unemployed workers, has led to hanky-panky that’s distorted the weekly data.

Read:U.S. entered recession in February after end of longest expansion in history

Whatever the case, economists say, it will be a while before a reliable picture of the labor market emerges.

The only thing that’s clear, Faucher said, is that labor market remains in serious trouble.

“I think claims are going to remain elevated until we as a society do a better job of containing the virus.”



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