The Dow marked its 2nd straight gain — but Thursday jobless claims may pose the stock market’s biggest test amid coronavirus

Jobless claims haven’t been a focal point for investors for more than a decade, but market participants will be keenly watching Thursday’s figures because they could provide the clearest sign yet of the damage wrought by lockdowns that have swept across much of the U.S. to mitigate the spread of the COVID-19.

“’How will the markets survive the U.S. initial claims going ballistic?’ is probably on everyone’s minds this morning” wrote Stephen Innes, chief global markets strategist at AxiCorp.

Check out: Jobless claims set to soar by the millions as layoffs surge due to coronavirus shutdowns

Market participants are bracing for a number that could run into the millions — figures that are likely to bring to an abrupt end the first win streak for the Dow Jones Industrial Average

DJIA, +2.39%

and the S&P 500 index

SPX, +1.15%

since early February.

With one out of every five Americans under some form of stay-at-home measure to help lessen the spread of the illness that was first identified in Wuhan, China, in December, some economists are anticipating that as many as 5 million workers will show as applying for unemployment insurance in the coming weekly report. It is a staggering number that some market participants say is too large to discount and one that will likely knock the air out of a market that is searching for its footing higher.

See: 23 million American jobs in immediate danger from the coronavirus crisis

“We realize freakishly bad economic data is coming,” wrote Fundstrat Global Advisors’ Tom Lee in a Wednesday research note. “On Thursday, some economists are projecting weekly jobless claims to surge to as high as 5 million,” he wrote.

“Many of our more active and tactical clients are short into this, arguing that such wildly bad news cannot be discounted and thus, this ‘tape bomb’ should lead to a big sell-off,” he said.

On Tuesday, BTIG analysts Julian Emanuel and Michael Chu said that if a $2 trillion coronavirus rescue package being voted on by lawmakers late Wednesday wasn’t approved by the time those gut-wrenching numbers come out on Thursday, it would likely knock the wind of the market’s sails.

The BTIG researchers wrote that the “psychology of such a large weekly claims number without a deal done will inflict incrementally larger damage” on an already fragile market.

The Senate late Wednesday approved the relief bill, which is designed to shield the economy from the pandemic that has halted normal business and personal activity.

“The problem is new jobless claims will measure the extent of U.S. policy failure, and with the Congress dilly-dallying, it will not help the matters,” wrote Innes.

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The Dow tumbled more than 1,000 points and marked its third-worst point drop in history — here’s how the stock market tends to perform after big drops

It finally happened.

A bona fide selloff took hold Monday on Wall Street after investors spent weeks attempting to come to terms with the potential impact of the COVID-19 outbreak as it spreads in countries outside of China, notably Italy and Iran, threatening to dent global supply chains and economies.

There are now 79,339 cases of COVID-19 — the infectious disease derived from the novel strain of coronavirus that reportedly originated in Wuhan, China, last year — in 30 countries, and 2,619 deaths, according to the latest figures from the World Health Organization.

Third-biggest point drop…ever

The day’s decline marks the third-biggest daily point drop for the Dow Jones Industrial Average

DJIA, -3.56%

in its 124-year history. The blue-chip benchmark closed 1,031.61 points, or 3.56%, lower, to end at 27,961, not far from the intraday low at 27,912.44.

Date Point change % change
Feb. 5 -1,175 points -4.60%
Feb. 8 -1,032 -4.15
Feb. 24 (at low) -1,031.61 -3.56%

To be sure, such point drops are less meaningful because the Dow has been trading at lofty levels. For example, the Dow’s 1987 crash was a 508-point decline but that fall represented a 23% plunge back then.

Need to Know: Warren Buffett says ‘don’t buy or sell’ on the headlines as coronavirus sends stocks plunging

1.32% or bust

The 10-year Treasury note yield

TMUBMUSD10Y, +2.26%

tumbled more than 10 basis points to trade at 1.367% on Monday, just shy of its June 2016 record low of 1.32%. Bond prices rise as yields fall. The 30-year bond yield

TMUBMUSD30Y, +1.62%

, known as the long bond, hit an all-time low last week, raising worries that bond investors are betting on economic pain ahead.

Government bonds have been hovering around lows even as stocks have been climbing, an odd dynamic in the market and has implied that investors are unsettled by the uncertainty surrounding the outbreak.

3% or worse

Monday’s selloff marks the first time all three major benchmarks — the Dow, the S&P 500 index

SPX, -3.35%,

and the Nasdaq Composite Index

COMP, -3.71%

— each fell by at least 3% on the same day since Dec. 4, 2018, according to Dow Jones Market Data.

11 sectors

The 11 sectors of the S&P 500 index all finished in the red, led by a 4.74% decline in the energy sector

XLE, -4.62%,

which suffered the worst daily percentage loss since Aug. 24, 2015.

All 30

All 30 of the Dow Jones Industrial Average’s components finished lower, led by a whopping 7.8% decline in shares of UnitedHealth Group Inc.

UNH, -7.84%,

marking its largest daily slide since Aug. 8, 2011. The fall in the health insurer exacted a toll of more than 160 points on the price-weighted blue-chip benchmark.

Negative for the year

Monday’s downturn has wiped out this year’s gains for the Dow (now -2.02%) and the S&P 500 (now -0.15%).


The S&P 500 breached its 50-day moving average for the first time since October. Technical analysts view moving averages as dividing lines between long-term and short-term bullish and bearish averages. The S&P 500’s 50-day moving average stands at 3,275.90 (see chart below).

The Dow also closed well below its 50-day moving average at 28,805.54, and slightly above its 200-day moving average at 27,224.03.

Worth a read: Apple’s stock falls below its 50-day moving average for first time in nearly 6 months

Read: Economists say Fed rate cut could come as early as March

Check out: Can stocks keep soaring as the U.S. dollar surges? What investors need to know

So how does the market tend to perform in this aftermath?

Despite all the relative carnage being endured by the market, stocks have a tendency to rebound after a hit of at least 2%, Dow Jones Market Data shows.

The past 10 times that the S&P 500 index fell by as much as 3%, for example, it declined 0.27%, on average, in the next trading session. However, the average performance improved dramatically in the following week, month and year, as shown in the table below:

Time frame Performance S&P 500 after it has fallen at least 3% in one day
Day after -0.27%
1 week after 1.83%
1 month after 2.08%
1 year after 12.97%

Meanwhile, the Dow has a similar record.

Time frame Performance Dow after it has fallen at least 3% in one day
Day after -0.19%
1 week after 2.07%
1 month after 2.93%
1 year after 12.52%

To be sure, how the market performs in the past is no guarantee of what it will do in the future. On top of that, an epidemic that gets out of control could lead to unprecedented results for the market and economy. During past epidemics, the market has eventually rebounded, however.

The researchers at Bespoke Investment Group also make the case that, over the past 11 years, declines of more than 2% for the S&P 500 have tended to see healthy rebounds, particularly when that daily slide happens on a Monday.

“Since March 2009, there have been 18 prior 2%+ drops on Mondays, and SPY has seen an average gain of 1.02% on the next day (Turnaround Tuesday),” the analysts wrote Monday. See attached chart:

Source: Bespoke Investment Group

Read: Opinion: If the coronavirus isn’t contained, a severe global recession is almost certain

Coronavirus update: 79,407 cases, 2,622 deaths, clusters emerge in Iran and Italy

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