Today Treasury Secretary Steve Mnuchin said the surge in Americans filing for unemployment benefits is “not relevant.” Mnuchin told CNBC, “The president is protecting those people.”
For the week ended March 21, initial claims for unemployment soared to a record 3.28 million. Last week, the week that ended on March 14, initial claims for unemployment had climbed to 281,000 from 211,000 in the prior week.
For a day, at least, the financial markets agreed. Today the Standard & Poor’s 500 closed up 6.13% and the Dow Industrial Average finished ahead 6.24% The NASDAQ Composite gained 5.60% and the Russell 2000 small cap index climbed 4.44%. The iShares MSCI Emerging Markets ETF (EEM) ended up 3.79%.
On the other side of the ledger from the record level of new claims–the highest since the government began tracking this number in 1967–was, of course, the Senate vote to pass the $2.2 trillion (yesterday the figure was a mere $2 trillion) coronavirus rescue package. The legislation goes on to the House for a vote tomorrow. House Speaker Nancy Pelosi, who is very good at counting votes, scrapped plans to move the bill by unanimous agreement and has instead engineered a voice vote tomorrow, after debate so that objectors get a chance to object, that is almost certain to result in the bill passing and going to President Trump for his signature.
After so much high drama dithering over the Senate bill, moving the legislation to the President’s desk certainly seems like a big deal.
And that’s what the market is celebrating today.
But it’s already clear that $2.2 billion won’t be enough and that a second bill will be necessary. (Maybe that’s what’s got Wall Street so excited–the idea, as the Federal Reserve put it earlier this week–of infinite money.) A one-time $1200 check and an extension on unemployment benefits plus grants and guaranties to big and small corporations might be enough to head off a regular recession by sending enough cash into the economy to stimulate demand.
But this isn’t a regular recession. The coronavirus looks ready to keep the U.S. economy captive for months yet, despite President Trump’s call to reopen the United States for business by Easter. So this $2.2 trillion is really just a giant life preserver thrown to workers and companies to keep them going until the pandemic relents and scientists develop a vaccine.
Looking at what stocks are climbing today, it’s clear investors and traders are betting on a return to a normal economy relatively soon. Instead of the rally being led by heavily shorted “risk” stocks such as Beyond Meat (BYND) and Bed, Bath & Beyond (BBBY), today’s move was led by shares of companies that would do well if the economy went back to something like normal. Coca-Cola (KO), for example, closed up 6.44%. Starbucks (SBUX) gained 6.21%. Intel was ahead 8.35% and Cirrus Logic (CRUS) gained 9.24%. Even General Motors closed with a 4.84% gain.
I continue to believe that this is a rally inside a continuing bear market and I will continue to do some selling to take what the market is giving me now and some buying of Put Options to prepared for the next leg of the downturn.