How Unemployment Is Impacting Rallies & Retreats In The Market

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U.S Stocks started the week on a roll edging higher with the S&P 500 closing the trading session within striking distance of its all-time highs. The Dow Jones Industrial Average also ended the day on the green rallying 1.3%. The rally in the broader stock market came as economically sensitive stocks shrugged off losses form mega-cap tech stocks that remain under pressure.

S&P Rally

The S&P 500 was up 0.27%, finishing the day at highs if 3,360 benefiting from a 2.4% gain in the energy and industrial sectors. The rally marked the seventh consecutive day of gains as the index continues to benefit from a cyclical shift in investors’ sentiments. The index is now 1% shy of its record highs.

Some big gainers included cruise operators and airline stocks that have been the hardest hit in the wake of the pandemic. Small and mid-cap stocks also raced higher with the Russell 2,000 index surging 1% to 1,584.67.

Monday stock performance affirmed that investors are increasingly turning their attention to the more sanguine and broader macro landscape. In contrast, tech stocks that have been a key driver of bullish momentum in the stock market appear to have cooled off with most counters pulling lower. Fast forward, economically sensitive stocks have emerged as key drivers of the overall stock market.

As the COVID-19 pandemic wanes, investors are increasingly becoming optimistic in view of the economic recovery. Therefore a shift to cyclical stocks appears real and sustainable given that most of them seem to be trading at a great discount compared to large-cap tech stocks

The NASDAQ index has struggled to find support above the 11,000 level edging lower at the start of the week by 0.4% to end the day at 10,968. The sell-off came as investors continued to trim positions in big tech stocks with the likes of Facebook Inc. (NASDAQ:FB) and Netflix Inc. (NASDAQ: NFLX) registering slides of as much as 2% each. Microsoft Corporation (NASDAQ:MSFT) was down 1.99% while Amazon.com, Inc. (NASDAQ: AMZN) dipped 0.6% and Alphabet Inc. (NASDAQ: GOOGL) down 0.1%.

Unemployment Benefit Boost

The rally in the broader stock market came at the backdrop of the U.S president signing a number of executive orders extending coronavirus relief. The orders extend unemployment benefits to hard-hit families owing to coronavirus pandemic. While the unemployment benefit will continue at a reduced rate of $400 a week, it is highly needed as more than 30 million people have been rendered jobless in recent months.

However, the new unemployment benefit faces legal challenges as it requires federal funding. Congress controls the provision of federal financing. The Democrat Controlled house has so far indicated its opposition to the $400 a week programs with the majority supporting the extension of the previous $600 a week program.

The U.S reaching a dire milestone of 5 million COVID-19 cases is a development that could hurt investor’s sentiments in the market. Measures to control the pandemic are needed to support an economic recovery that appears to have stalled in the wake of the second wave of infections.

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