Stocks continued their September slide as investors now seem convinced the economic recovery will cease to be be a V-shaped one, as it has bene so far. Congress hasn’t passed more fiscal stimulus and does not seem close to doing so.
The S&P 500 fell 0.75% and hit a level Thursday morning — $3,200 — that puts it 10% below its all-time high hit recently this year. Tech stocks continued selling off, with the Nasdaq down 1.1%. The 10-Year Treasury yield, already below the expected rate of inflation, was flat at 0.67%. The price of crude oil fell a few tenths of a percentage point to $39 a barrel.
As for tech, investors are re-rating valuation. The at-home environment powered tech stocks to outperform value by a wider margin than it did before the dot com bubble burst. This sent valuations to a range likely over reflecting the potential for longer-term customer adoption rates of secular trends like e-commerce, cloud and streaming. The Nasdaq 100 is now down almost 13% from its September 2 level.
Other sectors, which were struggling to gain traction a few weeks ago, are now consistently in the red every day in September. Banks are suffering from a yield curve that won’t expand and poor consumer credit. They were down a few tenths of a percentage point Thursday. Oil and consumer discretionary also fell. Nike NKE fell more than 1%, a day after a big run-up after earnings.
Two headwinds were driving cyclical stocks down Monday.
First, jobless claims for the past week came in at 870,000, going nowhere over last week’s reading of 866,000, speaking to a slowing rate of recovery in the job market. "While jobless claims under a million for 4 straight weeks could be considered a positive, we’re staring down a pretty stagnant labor market,” wrote Mike Loewengart, head of investment strategy at E*Trade in emailed remarks to reporters. "This has been a slow roll to recovery and with no signs of additional stimulus from Washington, jobless Americans will likely continue to exist in limbo. Further, a shaky labor market translates into a skittish consumer, and in the face of a pandemic that seemingly won’t go away without a vaccine, the outlook for the economy certainly comes into question.”
As Lowengart points out, the economy needs fiscal stimulus. Corporations already borrowed far more than $1 trillion this year at rock bottom interest rates. Small businesses, many of which are still shut down, need cash and so do households. Political will for more spending is waning and Republicans are trying to reign in the spending ahead of the election.
"The contrast between need and reality on stimulus is a key cause of market weakness,” said Jasper Lawler, head or research at London Capital Group.
Dr. Fauci did tell Congress he thinks just under 1 billion coronavirus vaccine doses will be distributed in the U.S. within the next year and that they will be rolled out in a few months. That would alleviate lockdown pressure on small businesses and support employment, but the positive impact of this would be watered down if consumers tighten their belts because they have already been laid off in the face of a stalling fiscal stimulus picture.