Stocks opened lower, then traded higher, before ultimately chopping every which way this morning. The Dow’s flat, the S&P’s slightly up, and the Nasdaq Composite is enjoying a 0.70% gain as of noon.
Conflicting economic reports sent traders in different directions today. The first of which showed that new U.S. home sales for August, which came in at just over 1 million, beat the analyst estimate of 898,000 according to the Census Bureau.
Opposite that were jobless claims for the week ending September 19th. 870,000 unemployment claims were filed, surpassing the Dow Jones estimate of 850,000. Continuing claims fell, but still exceeded expectations.
The two “boogeymen” the U.S. can’t seem to be rid of – a sluggish labor market and deflation – have persisted despite the ongoing economic recovery. The Fed’s “healthy inflation target” of 2% is still a ways away, and other parts of the economy are seeing a continued bounce-back while employment statistics stagnate.
That’s got investors (as well as analysts) feeling concerned about how much farther the rally can truly go.
“Claims, arguable the most important high frequency data point currently, missed expectations and moved up week-over-week,” said Evercore ISI strategist Dennis DeBusschere.
“With the Fed diminishing its own credibility by continually emphasizing the ineffectiveness of monetary policy and begging for fiscal support, weaker data will have a big impact on risk assets. Especially if the fiscal cliff starts to bite, which some indicators suggest might be starting.”
Stimulus gridlock in Washington is starting to take its toll, too. Without a deal, Wall Street firms are now starting to slash their GDP growth forecasts. Goldman Sachs just trimmed their Q4 estimate from 6% (annualized) to 3%.
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“We think it is now clear that Congress will not attach additional fiscal stimulus to the continuing resolution,” wrote Jan Hatzius, chief economist at Goldman Sachs.
“This implies that after a final round of extra unemployment benefits that are currently being disbursed, any further fiscal support will likely have to wait until 2021.”
As a result, traders have once again turned to Big Tech in search of a place to wait-out the volatility. FAANG stocks led the market this morning but remain down significantly on the month.
“Psychology around [tech] shifted and it’s no longer the stalwart source of support it once was,” wrote Vital Knowledge’s Adam Crisafulli.
“Meanwhile, investors still aren’t comfortable enough with the cyclical/value stocks to even begin to offset the ongoing tech weakness.”
And while it’s true that the rotation from tech-to-value might not transpire, that doesn’t mean all stocks will sink. If the tech sector can rebound over the next few trading sessions, bulls may be able to launch Big Tech back to its recent all-time highs.
What happens from there, however, is anyone’s guess. Another rapid sell-off could easily follow without any major vaccine or stimulus developments.
Especially heading into a critical presidential election.
Short-term, though, discount-seeking investors seem more than ready to “buy the dip.” It already started happening this morning.
And if the major indexes can stay north of their September lows, bears need to be careful. Because all it might take is a positive headline to skew things bullish, even if that shift in sentiment is short-lived.