Weekly jobless claims for the week ending July 4 came in at a better-than-expected 1.31 million, the Labor Department said Thursday. But stocks slid over 1% Thursday morning, and analysts note the “pace of improvement is slowing,” Jim Baird, partner and chief investment officer for Plante Moran Financial Advisors, wrote Thursday.
The S&P 500 was trading down 1.5% by midday; the Dow was down nearly 2%; and even the Nasdaq Composite joined in the selloff, trading down over 0.7%.
True, initial jobless claims are about 100,000 lower than last week, and unemployment for June just came in at 11.1%—down from 14.7% in April and 13.3% in May. According to some market strategists, that improving data (despite being miles off pre-COVID levels) has been enough to buoy markets as of late: “The market is not focused on levels, they’re focused on rates [of change], and right now those rates point to a positive and quicker-than-normal recovery,” Edward Jones’s Nela Richardson recently told Fortune.
But the big concern for markets now is that the pace of the recovery may not be as strong as investors thought.
The now-slowing improvement in jobless claims is what Peter Essele, head of portfolio management for Commonwealth Financial Network, calls “a concerning outlook for the 18 million who are claiming insured unemployment, particularly as a second wave in cases appears to be forming in some of the states that were previously sheltered from the pandemic,” he wrote in a note Thursday.
Stocks have largely ignored much of the alarming data that has surfaced in recent months—a pattern that has confounded casual market observers. According to some experts, it’s because “the Fed, economists, and market analysts have done a pretty good job of trying to prepare everyone for these numbers being catastrophically large, being Depression-level peaks or troughs. People have heard that again and again enough that, no matter how huge they are, they don’t react negatively as a result,” Randy Frederick, the vice president of trading and derivatives at Charles Schwab, told Fortune.
But as the S&P 500 trades lower on Thursday, down over 1% in midday trading, the tone of analysts is growing more grim. The U.S. hit a disturbing new record on Wednesday, with over 59,400 new cases of the coronavirus reported. Meanwhile, states that began reopening sooner have seen surges in virus cases, including Texas and Florida, which are now reimposing restrictions.
For those like Plante Moran’s Baird, the “greatest risk” to the slowly improving labor market is “without question the resurgence of COVID-19, as outbreaks rise across a large part of the country,” he wrote Thursday. Pressure on lawmakers to reimpose restrictions “will have a predictably negative economic impact, which would almost certainly push jobless claims higher once again,” Baird notes.
Although jobless claims have been coming down for 14 consecutive weeks, the devastation they’ve wreaked on U.S. households is continuing to be felt: A new survey from Bankrate.com out Thursday found that almost half of U.S. households reported a hit to their income during the COVID-19 crisis, “most commonly through layoff, furlough, or a reduction in hours,” the survey found. And of that group suffering a negative impact to income, almost 60% said they expected it to take three months or more to recover.
The fact that job losses have stayed stubbornly above 1 million a week, coupled with cases of the virus spiking in many states across the country, is enough for those like Bankrate.com’s Mark Hamrick to declare: “As the COVID-19 outbreak has recently intensified in some states, hopes for an accelerated, sustained, and successful reopening of the economy have hit roadblocks,” he wrote Thursday. “This raises concern about the economy’s rebound.”
Meanwhile, Commonwealth Financial’s Essele has an ominous observation: For the first time in a while, “unemployment insurance” searches on Google have increased—”a potential foreshadowing what’s to come on the claims front in the weeks ahead,” he wrote.
