DAILY INSIGHTS
Earlier gains erased after another massive surge in jobless claims. Stocks opened lower as they look to recover from a rough start to April and the second quarter. The overnight spike in oil prices was the main driver of earlier gains before market participants got a look at the devastating number of job losses announced this morning (more information below). Otherwise, we continue to anxiously wait for progress on COVID-19 containment that could help stocks put in a durable bottom.
New unemployment claims double last week’s historic number. Over 6.6 million people filed new claims for unemployment last week, double last week’s reported 3.3 million and almost ten times the worst number previously on record. The nearly 10 million new claims in two weeks represents about 1 in 16 workers, or roughly all the people added to the workforce since the middle of 2015. The speed and intensity of the economic shock from efforts to contain the COVID-19 pandemic were almost unimaginable just a month ago, but we expect these jobs will come back, and the $2.2 trillion in fiscal stimulus to date will help bridge the difficult transition period.
Oil prices jump. The price of WTI crude oil is about 10% higher this morning, trading above $22 per barrel, as investors look for a possible truce between Saudi Arabia and Russia. Russian President Vladimir Putin said yesterday that oil producers should cooperate, and US President Donald Trump is scheduled to meet with US oil executives Friday to discuss their concerns. Demand is also getting a boost, with China set to increase its emergency reserves amid the low prices.
Another depression? We’ve received many questions asking if this sudden stop in our economy could turn into a depression, similar to the 1930s. Fortunately, we don’t see that happening. There were four major mistakes that helped extend the length of the Great Depression: monetary, fiscal, regulatory, and trade mistakes. In all cases, today’s response has been drastically different. We will discuss this in more detail later today on the LPL Research blog.
Resilient manufacturing report, but with caveats. Wednesday’s Institute for Supply Management (ISM) Purchasing Managers’ Index (PMI) for manufacturing fell just one point to 49.1 and exceeded expectations. However, peeling back the onion reveals that lengthening supplier deliveries, normally evidence of strong demand, provided artificial support due to supply chain disruptions. The drop in the more forward-looking new orders component to recession-like levels provided further evidence that the US economy is in recession, as we discussed on Wednesday’s LPL Research blog.
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