The Nasdaq Composite closed at an all-time high for the third day in a row on Wednesday. It was the first time the Nasdaq finished above 10,000 points.
Beyond the tech-heavy index, stocks finished lower.
The market briefly turned higher after the Federal Reserve committed to ultra-low interest rates for a longer period, and the central bank’s projections showed no planned rate hikes this year or in 2021. Even in 2022, the majority of policymakers believe rates will remain at current levels.
Please ignore that blog post I wrote an hour ago.
The modest stock rally during the 2 pm hour has turned into the modest stock decline of the 3 pm hour. Despite encouragement that the Fed believes it will keep the stimulus bar open all night, Federal Reserve Chairman Jerome Powell also noted during his press conference that the economy remains unstable and millions of people will remain out of work for quite some time. That’s not great news.
The Dow was down 140 points
The S&P 500 fell 0.1%
The Nasdaq is still up, though. It surged 1.1% to yet another record high.
The labor market is bouncing back in America. But don’t get too excited: many people will never return to what they did before the pandemic.
“There will be a significant chunk … well, well into the millions of people, who don’t get to go back to their old job and there may not be a job for them for some time,” predicted Federal Reserve Chairman Jerome Powell.
Although he didn’t want to provide a precise estimate, he noted some people in industries that have been devastated by coronavirus won’t return to work for years. If people don’t return quickly to restaurants, for example, it will be hard for waiters and kitchen staffs to return to their old jobs – or indeed any food service position.
“When people lose a job, if they can find a job in their own industry, usually the fastest way, is if they know other people in that industry,” Powell noted.
That’s unlikely to happen for millions of people.
“It’s very tough on their lives,” he said.
Will the economy get better later this year? Mayyyyyybe.
Is the unemployment rate only going to go down from here? Proooobbbbablyyyy.
Federal Reserve Chairman Jerome Powell was hesitant to predict. But he was super encouraged by May’s surprisingly strong jobs report, and he thinks the worst may be behind us.
“The thing is, we’re not going to overreact to a single data point. We’re going to be very careful about reaching any conclusions about good data or bad data,” he said.
Still, Powell allowed that he “think[s] there’s a possibility that the bottom has come in the labor market. We don’t know that yet. We’ll know more as we go forward.”
Stocks briefly jumped higher today after the Fed announced rates would stay lower for longer – until the economy is back on its feet.
Now the Dow and the S&P 500 are back in negative territory, but the Nasdaq Composite remains on track for its third straight all-time closing high.
The key message was that rates would stay low until at least 2022, Shah said: “Markets should like today’s decision, reassuring them that stimulus is still at play and giving a ‘nod’ to a continued equity market rally.”
We went from the lowest unemployment rate in 50 years to the highest in nearly 90 years. In a matter of weeks.
“Extraordinary,” Jerome Powell said.
That’s why the government’s response to the economic crisis has been “large, forceful, and very quick,” Powell added. A $3 trillion stimulus bill, making up 14% of US GDP, is “in a class by itself.” And the way it was introduced was innovative, Powell declared.
And yet…
“Everyone can see it’s big. Is it going to be big enough? That is the question,” Powell said.
A number of people, through no fault of their own, may never return to work because the pandemic won’t allow it. That number could be in the millions, Powell noted.
“We want those people back in the labor force and getting jobs, and they’re going to need possibly – probably – further support,” Powell said. “It’s possible we will need to do more, and it’s possible Congress will need to do more.”
The current recession is NOT like the Great Depression. Nononononononono.
Sure, unemployment’s only comparison is the Great Depression. And businesses across the country are closed. And many people are struggling to buy food. But Federal Reserve Chairman Jerome Powell doesn’t see any similarities.
“I don’t think that the Great Depression is a good example or likely outcome for a model of what’s happening here at all, I really don’t,” he said. “There are so many fundamental differences.”
Powell noted that the government’s response to the economic calamity during the coronavirus pandemic has been “so fast and so forceful.”
The origin of the disaster was also different: The current recession was essentially man-made: We decided to shut down a healthy economy
But that doesn’t mean we’re out of the water – the economy still faces challenges. But it was a much healthier patient when it was brought into the ER.
“The financial system this time was in very good shape, much better capitalized,” he said. “That’s different that’s what was happening around the time the Great Depression started.”
The Fed’s federal funds rate aims to balance employment and inflation. Ideally, unemployment will be low, and inflation will be at around 2%.
But during the nation’s longest-ever expansion, the Fed was never really able to get to that target. Inflation remained stubbornly low, squeezing people’s paychecks and purchasing power.
“We were close for the last couple of years, but we never got there,” Federal Reserve Chairman Jerome Powell said during a press conference. “I think we have to be humble about our ability to move inflation up.”
The Federal Reserve has committed to keeping interest rates at ultra-low levels until the economy is back on its feet.
The “dot plot”, which shows the monetary policy expectations of policy makers, doesn’t show an interest rate increase until 2022. And even then, most FOMC members expect rates to remain at today’s low level.
It’s “dot plot” season, which means the Fed breaks out its crystal ball and then tells everyone it doesn’t know anything about the future. Happens every time.
This time, Fed policymakers said unemployment is going to fall below 10% by the end of this year and below 6% by 2022. That’s encouraging. But it also thinks that, to support employment, it’s going to keep rates near zero for two more years.
Everyone jumped on that prediction with headlines (see above and below this post) about the Fed’s expectations. But Federal Reserve Chairman Jerome Powell remained cautious about relying too much on the dot plot.
“The path ahead for the economy is highly uncertain and continues to depend to a significant degree on the path of the pandemic,” he noted.
However, Powell said the Fed continues to rely on its monetary policy tools and believes it’s “well-conditioned to support the economy in this challenging time.” So that’s good.
The jobless rate fell sharply during May – but the Federal Reserve isn’t expecting unemployment to return to normal levels anytime soon.
Fed officials anticipate the unemployment rate will drop to 9.3% during the fourth quarter, according to a summary of projections released Wednesday.
Although that would mark a major improvement from the current level of 13.3%, it’s still nearly as high as the peak of 10% during the Great Recession.
“A full recovery is unlikely to occur until people are confident it’s safe to engage in a broad range of activities,” Fed chief Jerome Powell said during a press conference.
Even during the fourth quarter of 2021, the Fed expects unemployment to remain elevated at 6.5%. That’s nearly twice as high as the Fed had projected in December, before the pandemic erupted.
By the end of 2022, the Fed expects the unemployment rate will fall to 5.5%. But that’s still well above the 4.1% that the Fed considers “normal” over the longer run.
Still, Powell stressed that Fed officials see multiple paths ahead for the economy, meaning these projections should be taken with a grain of salt.
Federal Reserve Chairman Jerome Powell acknowledged widespread protests across America, and he pledged support for racial equality.
“I want to acknowledge the tragic event that has, again, put a spotlight on the pain of racial injustice in this country,” he said. “The Federal Reserve serves the entire nation. We operate in and are part of many of the communities across the country where Americans are grappling with and expressing themselves on issues of racial equality. I speak for my colleagues throughout the Federal Reserve system when I say there’s no place at the Federal Reserve for racism, and there should be no place for it in our society. Everyone deserves the opportunity to participate fully in our society and in our economy.”
Powell said those principles guide the Fed’s economic policy and commitment to diversity and inclusion in the workplace. The Fed’s open market committee has a single person of color. But Powell said the Fed “will take this opportunity to renew our steadfast commitment to these principles.”
Federal Reserve Chairman Jerome Powell praised his board of governors for swift action in rescuing markets. That’s great for the overall economy, but he acknowledged that’s not going to make it easier for normies to get a loan when they’re out of work.
That’s where lawmakers have to step up.
“Our ongoing purchases have helped to restore orderly market conditions and have fostered more accommodative financial conditions,” Powell said. “Many borrowers will benefit from these programs as will the overall economy, but for many others getting a loan that may be difficult to repay is not the answer. In these cases direct fiscal support may be needed.”
Powell noted the CARES Act and other legislation help to benefit people and small businesses directly. And he said Congress may have to act further to keep Main Street afloat.
The Federal Reserve said it expects to keep its lead foot on the stimulus pedal for quite some time, keeping rates near zero through 2022. It will also continue to inject billions of dollars into the economy.
Investors liked what they heard. Stocks turned moderately positive this afternoon.
The Dow was up 35 points
The S&P 500 was up 0.3%
The Nasdaq, already at a record, surged 1.3%
The Federal Reserve left interest rates unchanged and committed to maintaining its unprecedented stimulus plan until the economy “has weathered recent events.”
The central bank acknowledged the “tremendous human and economic hardship” that the coronavirus pandemic has brought upon people around the world, and it doesn’t think the economic difficulties will let up anytime soon. The Fed updated its economic projections for the year, predicting a 6.5% drop in gross domestic product, the broadest measure of the economy, in 2020.
By December, the Fed expects the unemployment rate to fall to 9.3%, down from 13.3% in May.
The dramatic ups-and-downs on Wall Street of 2020 haven’t been kind to expensive stock pickers who are paid to beat their benchmarks.
More than 64% of active US stock funds underperformed the S&P Composite 1500 during the first four months of 2020, according to a report published Wednesday by S&P Dow Jones Indices.
That means investors were far better off riding out the market turbulence in cheap vanilla ETFs that mirror broad market indexes than ponying up for active managers who tend to charge hefty fees.
One exception is large-cap growth funds, where nearly two-thirds of stock pickers beat their benchmark.
The S&P 500 plunged 20% during the first quarter, its worst since the 2008 financial crisis. But stocks have since raced higher, with April marking the market’s best month since 1987.
The struggles of stock pickers are hardly new. During the one-year period ending March 2020, 72% of domestic equity funds underperformed, according to S&P. That figure rose to 87% over the past decade.
These trends underscore how difficult it is to time volatile markets – even for professionals. And it’s why investors continue to plow money into cheap ETFs.
It’s nearly time for the weekly look at jobless claims again. Another 1.6 million first-time claims for unemployment benefits are expected in tomorrow’s report from the Department of Labor. The report is due at 8:30 am ET.
It would be a decrease from the 1.9 million in last week’s report, marking the tenth week that initial claims have declined since peaking at 6.9 million in the last week of March.
Continuing claims, counting the people who have applied for unemployment benefits for at least two weeks in a row, are expected to be 20 million, down from last week’s reported 21.5 million.
While the weekly stats are improving, millions on people continue to be reliant on unemployment aid to make ends meet.
The regular headline numbers also don’t reflect the additional pandemic unemployment assistance that is currently available.
In the week ended May 16, it was reported that 10.7 million American workers claimed pandemic unemployment benefits – but this number comprised only 35 states that reported the pandemic assistance numbers.
Nation-wide protests against systemic racial injustice are putting corporate America on the spot.
Companies have “the responsibility to stand up and advocate for the things you believe in as an organization,” said Bombas CEO David Heath on the CNN Business digital live show Markets Now.
The sock company was founded to support the homeless community, and donates one item of clothing to the homeless for every item it sells.
Black Americans account for a much higher percentage of the homeless population compared to the general population, and systemic racism is one of the root causes of homelessness, Heath told host Alison Kosik.
And customers are supporting the company’s social activism.
“From day one we’ve seen survey data […] that ranks our mission as number one or number two as the reason that customers buy from us,” Heath said. “People vote with their dollars.”
Big techs aren’t the only stocks surging to record highs. Elon Musk’s electric car maker Tesla (TSLA) soared 8% Wednesday and topped the $1,000 level for the first time.
That pushed Tesla’s market value to $188.5 billion, making it worth more than Toyota (TM) at $182 billion.
Investors clearly believe electric vehicles will steal even more market share from traditional gas guzzlers.
That’s obvious in this stunning statistic: Tesla is now worth more than two times the COMBINED values of Big Three auto makers General Motors (GM), Ford (F) and Fiat Chrysler (FCAU).
Nikola (NKLA), a new rival to Tesla, has surged since it went public – even though the the maker of trucks powered by battery and hydrogen fuel cells doesn’t even have a product on the road yet. Nikola shares plunged 14% Wednesday, but they have still more than doubled in the past week.
The Federal Reserve’s monetary policy update is less than an hour away, and will be followed by the new conference with Fed Chairman Jerome Powell.
It will be a tricky meeting for Powell, who will have to talk the economy down, Danielle DiMartino Booth, CEO and chief strategist of Quill Intelligence, told Alison Kosik on the CNN Business digital live show Markets Now.
Following last week’s much better-than-expected jobs report, which showed 2.5 million positions were added to the US economy versus experts’ expectations of 8 million lost jobs, more voices have gotten louder about the reopening rebound. President Donald Trump has characterized the economy’s rebound as a rocket ship earlier this week.
At the same time, the market is pricing in ultra-low interest rates will be in effect for years to come. Lower rates are good for stocks because they allow companies to borrow at cheap interest rates.
Stocks have been rallying in recent weeks. The Nasdaq Composite is on track today for its third consecutive all-time closing level.
