What’s Holding Stocks Back Thursday

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Stocks were largely struggling to gain traction Thursday, as jobless claims numbers finally improved meaningfully, but a stalling stimulus conversation in the Senate is holding investors back from fully believing in a fast economic rebound. 

The S&P 500 was flat to down about 0.2%, supported by the tech-heavy Nasdaq, which rose 0.5%, as investors continue to favor growth tech during economic uncertainty. The 10-Year Treasury yield rose to 0.69%, a classically bullish signal, although the Treasury Department is issuing new long-term bonds, putting near-term supply pressure on price. Investors expect rates to remain pressured until there is more economic certainty. 

The data are providing some level of certainty on a backwards looking basis. Jobless claims for the past week came in at 963,000, beating estimates of about 1 million and improving over last week’s reading of 1.19 million. For almost two months, weekly claims were above 1 million as the economic recovery had begun to stall. This reading show the recovery has picked up again. 

But cyclical stocks were down. Consumer discretionary stocks in restaurants and retail were down, while oil and banking were also down a bit less than 1%. Banks stocks, after having outperformed the U.S. market in recent days, have begun to slip again even as the yield curve expands, as investors are skeptical of the recent yield curve expansion. Of course, this sets up a potential buying opportunity for long-term investors, but investors need more certainty on the structure of the U.S. economy and rates market going forward for now. 

Part of that skepticism: fiscal stimulus talks are breaking down. The roughly $1 trillion bill has not yet passed, while states have paused reopenings and businesses are suffering. Job creation and the speedy economic rebound into 2021 hinges somewhat on this stimulus. 

"What’s more worrying is the army of 16 million jobless in the US, who are craving for the next fiscal stimulus package to pass as infection numbers continue surging,” wrote Ipek Ozkardeskaya, senior analyst at Swissquote Bank in emailed remarks to reporters. But talks haven’t borne fruit so far.” 

Others agree. "The stalemate in Washington certainly looms large, and it’s unclear how long the market will tolerate the impasse,” said Mike Loewengart, head of investment strategy at E*Trade. 

Elsewhere in the market, Lyft  (LYFT) - Get Report shares fell 5% to $29, after the company met revenue estimates and posted a narrower net loss than expected, as the company cut costs effectively. Management said profitability remains on track, even conservatively assuming fewer rides. Investors need more certainty on the top-line recovery. But Lyft, like Uber  (UBER) - Get Report, may have to halt operations in California. 

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