- Once the election results are final, market attention will return to the worsening pandemic and prospects for fiscal stimulus
- Fed Chair Powell again pleads for more fiscal help
- U.S. labor market recovery slows
Once the election results are final, market attention will return to the worsening pandemic and prospects for fiscal stimulus — The markets continue to wait for definitive results from Tuesday’s election. Former VP Biden seems to have the inside track to win the presidency, needing only one or two more states to win, depending on whether he holds Arizona. Meanwhile, Democrats have virtually no hope of winning control of the Senate, depending on final vote counts in Alaska, North Carolina, and Georgia, and at least one run-off in Georgia in January.
The stock market on Thursday extended its 3-day rally on the prospects for a divided Congress, which means no tax hike and no legislative reform of the tech and healthcare sectors. The downside, however, is that there will not be any blue-wave stimulus measures to boost the economy.
Once the dust settles on the election, the markets will refocus their attention on the worsening pandemic and the prospects for any new stimulus measures from Congress. There is hope for perhaps a $1 trillion stimulus bill during the lame-duck session. Senate Majority Leader McConnell on Wednesday said, “Hopefully the partisan passions that prevented us from getting a rescue package have subsided. That’s job-one when we get back.”
Also, Bloomberg on Thursday reported that a Republican aide said that “Democrats can have the deal they were offered months ago.” That was a package totaling about $1 trillion, including stimulus checks to most taxpayers, a second round of PPP aid to businesses, an extension of the bonus unemployment benefit, and $100 billion of funding for schools.
The question is whether Speaker Pelosi will accept a deal as low as $1 trillion after she spent weeks sticking to her demand for more than $2 trillion. If Mr. Biden wins the election, Speaker Pelosi might agree to a smaller deal during the lame-duck session with a pitch that she will pursue a second deal in early 2021 after Mr. Biden becomes president, even though a second deal seems unlikely with Mr. McConnell returning as Senate Majority Leader in January.
Meanwhile, the pandemic has reached record highs and seems set to get even worse as winter approaches with no vaccine as yet. The U.S. had a record 102,831 new Covid infections on Wednesday. That means that the U.S. in a single day had more Covid infections than the total number of 86,115 Covid that China has seen during the entire pandemic, according to figures at www.worldometers.info. The U.S. 7-day average of new Covid infections is now at a record high near 92,000 and rising fast. European countries are also seeing record highs, but new restrictions that started in the past week will perhaps lead to reduced infections in coming days.
Fed Chair Powell again pleads for more fiscal help — The 2-day FOMC meeting that ended Thursday produced no surprises and the markets showed little reaction to the meeting outcome. The Fed left its funds rate target unchanged at 0.00%/0.25% and its QE program unchanged at $120 billion per month.
Fed Chair Powell once against pleaded with Washington politicians for more fiscal aid. He said, “I think we’ll have a stronger recovery if we can just get at least some more fiscal support. The recent rise in new Covid-19 cases, both here in the United States and abroad, is particularly concerning.”
Mr. Powell said that FOMC members extensively discussed options for its QE program, which boosted market expectations that the FOMC at its next meeting in December might at least issue more detailed guidance on its QE program.
Mr. Powell also said that FOMC members discussed whether the Fed will extend its emergency lending programs past their current expiration dates on December 31. An extension of those programs seems likely in order to bolster market confidence as the pandemic reaches record highs and threatens to cause a new hit to the economy.
U.S. labor market recovery slows — Today’s U.S. Oct unemployment report is expected to show that the recovery of the U.S. labor market is slowing and has a very long way to go to fully regain the pandemic losses.
The consensus is for today’s Oct payroll report to show an increase of +600,000, which would be weaker than Sep’s increase of +661,000. Payroll jobs have so far recovered by a total of 11.4 million jobs from April’s low, recovering only 52% of the 22.2 million jobs that were suddenly lost in March and April due to pandemic shutdowns. The U.S. economy needs to produce another 10.7 million jobs just to get the U.S. job level back to February’s pre-pandemic high, which is likely to take several years. During the Great Recession, it took more than six years for the payroll jobs to return to their pre-recession peak.
Today’s payroll report is expected to be buffeted by several major factors, such as the reopening of some businesses, the layoff of many Census workers, and layoff announcements by large companies.
The U.S. economy and labor market are set for a tough winter as the pandemic expands to record highs, thus putting pressure on people to stay home and be as cautious as possible and putting pressure on government officials to impose more restrictions.
The consensus is for today’s Oct unemployment rate to fall -0.2 points to 7.7%, adding to Sep’s -0.5 point decline to 7.9%. However, the unemployment rate is still far above the pre-pandemic level of 3.5%.
