Some days it feels like there is simply too much news. That clearly was the case on what was a very mixed Thursday for stocks as investors were bombarded with economic and political headlines alike.
The stop-and-watch headline was the Commerce Department’s announcement that America’s GDP declined 32.9% on an annualized basis during the second quarter – the worst such drop in U.S. history.
“The outcome was broadly in line with our official forecast (-35.0%) and our Q2 GDP tracking estimate (-34.0%),” write Barclays analysts. “As we had noted during the Q1 GDP release, the downturn in activity at the time was just the tip of the iceberg. With the pandemic intensifying in April, prompting the stay-at-home orders, closure of nonessential businesses and a rise in unemployment, a more severe disruption to activity and employment in Q2 was widely expected.
“With the Q2 GDP report broadly in line with our expectations, our outlook for growth in Q3 remains unchanged. We expect growth to rebound in the third quarter (at a 25% quarter-over-quarter seasonally adjusted annual rate), led by an increase in personal consumption spending.”
More surprising was that jobless-benefits claims rose last week, to 1.43 million from 1.42 million the week before – a number that itself was revised higher. That weighed on West Texas Intermediate oil prices, which dipped below the $40-per-barrel mark for the first time in weeks. That in turn slammed oil giants Exxon Mobil (XOM, -4.7%) and Chevron (CVX, -4.1%).
President Donald Trump’s tweet floating the idea of delaying Nov. 3 presidential elections, a power held only by Congress, threw stocks for a quick loop, too. Meanwhile, Congress remained at a standstill on a second economic package, even as a $600-per-week enhancement of federal unemployment insurance is set to expire Friday, putting millions of Americans at financial risk.
The Dow Jones Industrial Average closed with a 0.9% decline to 26,313, the S&P 500 dropped 0.4% to 3,246, and the small-cap Russell 2000 fell 0.4%, too, to 1,495. The tech-heavy Nasdaq Composite, however, actually managed a 0.4% gain to 10,587.
Immediately after hours, investors were treated to a host of Big Tech earnings, including from Apple (AAPL), Facebook (FB) and Amazon.com (AMZN).
Welcome to Wall Street, Newcomers
It’s a wild time for new investors, isn’t it?
E*Trade has added more than 650,000 new accounts through the end of the second quarter, Schwab added more than a half-million accounts in Q2 alone, and the Robinhood app has recorded millions of signups in 2020.
Some joined using their COVID rescue-package checks from earlier in the year, and we could see another wave of new activity thanks to similar handouts expected from the next round of stimulus, whenever it’s finally agreed upon.
But while many of these fresh-faced investors enjoyed the market’s rapid recovery off the March lows, they now face the uncertainty of a presidential election, deteriorating U.S.-Chinese relations, a recession and a pandemic. It’s not the easiest time to still be developing your sea legs. COVID-19 alone presents a horde of question marks.
“Although the reopening is going better than expected and is clearly having positive economic effects, we also certainly face risks. The biggest is that as the local outbreaks have turned into local shutdowns, this has had negative economic effects, which is slowing the recovery,” says Brad McMillan, Chief Investment Officer for Commonwealth Financial Network, a Registered Investment Adviser-independent broker/dealer with $200 billion in assets under management.
“Another potential risk is that, even as case growth moderates, consumers may be slower to return and spending growth will improve more slowly than we have seen so far in the recovery. While the slowdown so far has been limited, despite the outbreaks, a deeper drop remains a risk. That said, spending remains strong so far and has come back after some weakness. So, the hard data remains positive.”
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Kyle Woodley was long AMZN and FB as of this writing.
