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.
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.
“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.