Economy: Dow rebounds more than 300 points on stimulus hope to end first losing month since March

Economy: United States stocks climbed in volatile trading amid rising hopes for further covid stimulus, but major averages still posted their first down month since March 2020. The Dow Jones Industrial Average closed up 329.04 points, or 1.2% to 27,781.70, after jumping 573 points at its session high. The S&P 500 rose 0.8% or 27.53 points to 3,363.00, while the tech-heavy Nasdaq Composite climbed 0.7% or 82.26 points to 11,167.51.

Stocks cut gains in the final hour of trading after House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin failed to strike a covid aid deal. The pair will continue talks as they try to craft a fifth package that could pass both chambers of Congress. The market soared earlier in the session after Mnuchin said lawmakers were giving the bill a serious try.

Sentiment was helped by better-than-expected economic data. Private-sector jobs count showed growth of 749,000 in September 2020, ahead of the 600,000 expected. Meanwhile, pending home sales soared 8.8% in August 2020, marking its highest pace on record. Stocks sensitive to the economic recovery, including banks and cruise operators, were among the biggest winners.

Goldman Sachs gained more than 2%, while Citigroup rose 1.6%.

Norwegian Cruise popped more than 3%, and Boeing climbed 1%. Still, major averages suffered their first monthly declines since March 2020 partly due to a tech-led correction earlier in September 2020. The S&P 500 dropped 3.9% this month, while the Dow and the Nasdaq Composite fell 2.3% and 5.2%, respectively. Investors digested the first debate between President Donald Trump and Democratic nominee Joe Biden, which turned out to be particularly vicious with constant interruptions and insults.

Wall Street remained concerned that it will be a drawn-out electoral process that could hit the market. The market is probably not too crazy about that. The short-term volatility pressures probably will not abate anytime soon after this debate. In a sense, it is creating even more uncertainty. Trump and Biden sparred on a number of issues, including their qualifications to manage the United States economy, the nomination of Amy Coney Barrett to the Supreme Court, as well as the United States′ handling of the covid pandemic.

Many market strategists have cited uncertainty around the election as a key headwind for the market before year-end with each outcome bringing its own risks and benefits. Some investors have raised concerns about a potential Biden win as they fear it could lead to higher corporate taxes and tighter regulations. But at the same time, it could ease concerns about the trade war and lack of stimulus to bolster the economy in the wake of covid.

Investors are also worried about the potential that the result is too close to call and neither candidate concedes.

That uncertainty could particularly weigh on the market. Trump frequently claims that mail-in balloting leads to voter fraud even though experts have repeatedly said there is no evidence of that ever having been a problem in the United States. Questions on election fraud were raised, which will add to concerns about a volatile post-election period if there is a close or uncertain electoral outcome.

Positive data regarding a potential covid treatment from Regeneron Pharmaceuticals helped boost sentiment on Wall Street. Regeneron said its REGN-COV2 drug reduced viral levels and improved symptoms in non-hospitalized covid patients. Meanwhile, Moderna’s experimental covid vaccine appears safe and shows signs of working in older adults. However, Moderna’s vaccine will not be ready before the November election.

Disney shares lost more than 1% after the company said it would lay off 28,000 people in its theme parks division. On September 12th 2020, the United States economy kept growing despite a summer spike in covid cases, but millions of Americans are being left behind. The broader economy had performed better than expected. Hiring had increased, consumer spending had been steady, manufacturers were on an upswing, and demand for homes and new cars had been strong.

Data showed an increase in retail sales in August 2020 as well as improved production among manufacturers in September 2020, suggesting a recovery.

Yet a new divide emerged between the haves and have-nots, with the have-nots the ones whose livelihoods being most disrupted by the covid pandemic. The unemployment rate among banks, insurers, Wall Street brokerages, and other companies involved in the handling of money was just 4.2% in August 2020. That was not much higher than the national rate of unemployment shortly before the pandemic struck in March 2020.

By contrast, the unemployment rate for companies involved in travel, hotels, dining out, and other forms of leisure and hospitality stood at a stunning 21.3% in August 2020. These jobs tended to pay far less than professional work in fields such as finance and technology. Many of the key reports on the economy, however, told very little about this divide.

Retail sales and consumer spending, for example, had been stronger than expected. What the reports most likely reflect were the habits of high-income earners with secure jobs who were working from home. The high-income earners could afford to spend, and that was what they were doing. High demand among these high-income earners helped explain strong sales of homes and autos.

And the high-income earners had even more reason to spend given a massive rebound in the stock market that pushed their net worth close to pre-pandemic levels.

It had long been an industry maxim that the 20% of wealthiest Americans account for up to 80% of all discretionary spending. If that was the case, the high-income earners were making the recovery looked better than it was. The millions of Americans who were still out of work had no such luxury, especially after the expiration of an extra $600 in federal unemployment benefits in July 2020.

It was a significant loss for the people who were no longer getting the federal unemployment benefits. The loss of income for these Americans, and devastation caused to airlines, hotels, restaurants, and retailers, could eventually filter into the broader economy. Just September 2020, a hoard of major airlines, hotels, mall operators, and others had announced they would permanently cut more jobs unless Washington provided additional aid.

United States unemployment benefit claims had risen for four straight weeks, potentially another warning sign of trouble ahead. The Federal Reserve evaluating the economy, was still worried that top central bankers continue to plead for more financial relief from Congress. Normally very reticent to give lawmakers advice, the Fed was surprisingly vocal because it worried the recovery would flag unless Congress put more wind at its back.

The wildfires in California, the state with the nation’s largest economy, was not helping.

The fires had displaced many people and caused applications for unemployment benefits to spike. Nothing had changed in Washington. Democrats blocked a skinny Republican bill that would have provided somewhat more aid for the economy. Democrats wanted a much larger spending bill that Republicans had resisted. With the pivotal 2020 election looming in November, the odds of another major financial-aid package appeared to be diminishing by the day.

Perhaps the only thing that would get Congress to act was a sudden downturn in the recovery. It did not happen in August 2020 however, and it did not look like the economy would suddenly peter out in September 2020 either. As hard as it would have been to believe, it seemed entirely believable that the United States was headed into the election with no new measures.

A pandemic-fueled tech stock surge had led to a reshuffling at the top of the United States billionaires list. MacKenzie Scott, a novelist and philanthropist who recently divorced Amazon founder Jeff Bezos, became the wealthiest woman in the world, with a net worth of over $66 billion. Tesla CEO Elon Musk overtook Facebook CEO Mark Zuckerberg to become the third-richest man in the world, after Jeff Bezos and Bill Gates, with a net worth of $115 billion.

Since pandemic lockdowns started in March 2020, the combined United States billionaire wealth had grown by nearly $800 billion, or over 25 percent.

As part of her divorce, Scott got a 4 percent stake in Amazon, whose stock had been rising as covid-induced lockdowns propel online sales and home deliveries. Amazon shares had risen from nearly $2,000 to $3,500 since the start of 2020. Tesla shares rallied after a stock split that took effect on Monday August 31st 2020, and soared by 500 percent. Retail investors on low-cost, low-entry platforms such as Robinhood had also made the stock a favorite.

Musk’s personal fortune had tripled since March 2020, the beginning of the pandemic shutdowns. As part of a recently negotiated pay package, Musk’s board would give him another $50 billion if he met all of a set of agreed-upon performance goals. It had been a wild and crazy carousel at the top of the billionaire index. The blistering pace of wealth accumulation came in sharp contrast to the economic devastation that millions of Americans at the other end of the spectrum were facing.

The Federal Reserve estimated that net household worth fell by a record 5.6 percent in the first three months of 2020, the biggest single-quarter decline since the 1950s. With unemployment at 10.2 percent, more than 1 million people a week filed for first-time unemployment benefits. Lawmakers were at a stalemate over additional emergency aid. Some Americans turned to crowdfunding to keep their stores open, pay for medical procedures, and even funerals.

Nearly half of American households were going hungry, and food pantry demand was up by 20 percent since the beginning of the pandemic.

In addition, an estimated 40 million Americans could potentially be turned out of their homes. The Centers for Disease Control and Prevention (CDC) would use its authority to halt evictions through the end of the year. The growth in billionaire wealth, alongside the collapsing health and fortunes of most working class and low income households, was grotesque and unseemly.

Scott was one of the billionaires to have signed “The Giving Pledge”, a commitment to donate the majority of their wealth. Out of her over $60 billion net worth, Scott gave $1.7 billion to a plethora of nonprofit organizations and historically black colleges. In August 2020, Wall Street rewarded big-box stores for their monster sales volumes during the pandemic economy, propelling retail stocks such as Target to a record high.

On the other hand, thousands of American small businesses were still hanging on by a thread. The widening gap between retail giants and smaller stores was underscoring the pandemic’s effect of driving a wedge between the haves and have-nots across the industry. Target shared second quarter results that were exceptional. Target’s online sales soared by 24 percent during the quarter ending August 1st 2020, compared to the same time previous year.

Target also grabbed $5 billion in additional market share in the first half of 2020.

Online sales at Lowe’s jumped by 153 percent. Walmart saw a 97 percent increase in online sales during the quarter compared to the same time previous year. Home Depot reported a 23 percent surge in sales, fueled by people looking to improve their space while stuck at home. With covid cases continuing to rise, people were not venturing out to shop as much as they did before.

Staying home caused a blow to mall retailers and small businesses that were not categorized as essential services during the initial days of covid. What used to happen before the pandemic was people used to shop at different stores for different products, and that had been disrupted because they did not want to go outside. The stores that people did visit were the ones that were capturing more of consumer spend, and Target and Walmart had really benefited.

But as big-box retailers gained from people consolidating their shopping carts at one of their hundreds of chain stores, small businesses had struggled to survive. Far more small-business owners experienced lower sales from May to July 2020 compared to the prior three months. Sales at small businesses stood at negative 28 percent, down nine points from May 2020 when it was at net negative 19 percent.

There was no comprehensive data on how many small businesses had closed since the pandemic.

But from March 1st to August 11th 2020, about 155,000 businesses shuttered. Roughly 91,000 of the closures were permanent. Total number of small businesses that filed for bankruptcy increased by 36 percent from 2019. The federal government’s Paycheck Protection Program (PPP) was designed to offer a lifeline to small businesses by covering the cost of their staff.

With more than half the country’s workers employed by small businesses, the program aimed to protect employees who faced unemployment if those businesses were forced to close. But the program had been riddled with controversy, and many business owners failed to receive funding. There was a downturn in job development. Even more surprising was the fact that covid-sensitive sectors were amongst the fastest growing markets in July 2020.

The near-term outlook for the labor market and the economy would be extremely dependent on fiscal policy. If a portion of the jobless did not end up in a more permanent form of employment, the economy recuperation was going to be much slower. The economy recovery did not stop, however it slowed. The July 2020 jobs report beat expectations, saying that United States employers added 1.8 million jobs throughout the month which the unemployment rate reduced to 10.2%.

Financial experts had expected to see 1.5 million jobs added, with unemployment at 10.5%.

While favorable, the report likewise suggested that the labor-market recovery from the covid recession was losing speed. The July 2020 figure was much lesser than the 4.8 million jobs included in June 2020 and the 2.7 million added in May 2020. The speed of economy development had decreased and was still far from any sort of healthy labor market.

Work remained down 12.9 million jobs from its pre-pandemic February 2020 level, indicating that just about 42% of the jobs lost during the crisis had actually been recuperated. The cumulative hit to unemployment and the new unemployment rate were still worse than the Great Recession. The report indicated progress in the labor-market recovery from the covid recession, however it also signaled that the pace of the economy recovery was slowing.

Early in the crisis, job losses were because individuals stayed in business that were reticent to engage in consumption or financial investment. There was a need to raise economy development, however there was no sign that it was fast enough. And with less than 3 months until the election, attention on the coming jobs reports would likely heighten.

The July 2020 jobs report increased the pressure on policymakers to extend financial relief to prevent the downturn from developing into a full-blown double-dip recession.

It would be an unimaginable gain before the pandemic. Still, there were some other factors to consider. One was how sustainable these gains were. The path ahead was most likely to be bumpier, and depending upon the part of the economy, it was probably going to be a bit of a different story.