Jobs & Unemployment

Daily Markets: Jobless Claims Skyrocket to Record High

New York State Department of Labor building - jobs and unemployment
Credit: Andrew Kelly - Reuters / stock.adobe.com

Today's Big Picture

The markets today are focused primarily on just one thing, this morning's horrifying jobs report which saw a record-breaking 3.28 million new claims, more than double the 1.5 million expected and 4.7x higher than the prior record high. As markets digested the report, which was a rocket ship ride higher compared to last week's 282,000 new claims, US equity futures slumped further compared to pre-report declines.

For some historical context, the prior record high for initial jobless claims was in the midst of a recession in October 1982 at 695,000. In the worst of the Great Recession, in March of 2009, we saw only 665,000 new claims. We are in utterly uncharted territory.

Before today's jobs report, all the major European equity indices were in the red between 0.5% and 1.5% with Germany's DAX down the most and Italy's FTSE MIB down the least. After the report, those European equities pushed even lower as markets absorbed the size of the US jobless claims report, with most down 2% or more.

After enjoying the first two consecutive days on gains in the US, shares in Asia closed mostly in the red today as the world awaits today's US initial jobless claims. Japan's Nikkei 225 fell the most, declining 4.5%. China's Shanghai Composite was little changed, down 0.6%. South Korea's Kospi fell 1.1%, and Australia's ASX 200 beat the trend and rose 2.3%.

Oil has dropped again, down 2% to $24.00 barrel. WTI is down 47% this month alone.

Data Download

There are now over 475,000 confirmed cases of the coronavirus globally, with over 21,000 deaths. In there US, there are over 68,500 cases, 48% of which are in New York. The US currently has the third most cases in the world, but will likely overtake Italy for second place within a few days and China within a week or two. We are seeing some optimistic data coming out of Italy, the western nation that was first hit hard by the pandemic and the first to go under nationwide lockdown. Yesterday was the fourth consecutive day of declining net new cases.

Spain saw an additional 6,673 new confirmed cases yesterday, bringing its total to 56,188. Madrid has had to place bodies of those who have died from the virus in an ice skating rink as morgues and funeral homes cannot handle the pace of deaths.

While we are trying to contend as best we can with the virus and efforts to contain it, yesterday Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, shared we will likely "need to be prepared for another cycle" of novel coronavirus next winter. According to Fauci, if we see a substantial outbreak of the virus in the Southern Hemisphere countries as they go into their winter season, "it will be inevitable" that we face a second cycle of the virus. As it is, dog lovers in South Africa have been ordered not to take their beloved pets for a walk for three weeks.

In a word, ugh!

Singapore joined the stimulus party, delivering a package equivalent to 11% of GDP after seeing Q1 GDP fall at a 10% annual rate.

Yesterday stocks reversed late in the day, giving up over two-thirds of their earlier gains but remained in positive territory, the first day of back-to-back gains in over a month and the best back-to-back gain TARP was announced in October 2008. As was the case on Tuesday, the stocks that had sold off the most during Wednesday's retrenchment were by far the day's biggest gainers. Mortgage REITs, which experienced their worse draw down on record just a few days ago, enjoyed their best day on record yesterday.

Yesterday California Governor Gavin Newsom reported that his state has seen 1 million unemployment claims in less than two weeks as the pandemic has forced a shut down across the state. The US labor force consists of roughly 165 million people, with an estimated 70 million now completely idle or with materially reduced hours.

Earlier today, we received a few confidence indicators in Europe, which in a surprise to no one slumped month over month as the toll of the coronavirus was felt. Even though French Business Confidence slumped to 98 from 101 in February, the March reading was ahead of the expected 93 figure. The March Business Climate Indicator for France fell a record 10 points to 95 from 105 in February, with roughly 35% of its economy completely shutdown. The April GfK Consumer Confidence reading for Germany fell to 2.7, missing the expected 7.1 and compares to March's 8.3 reading. Leading the April reading lower was the freefall in consumers' expectations for personal income that dropped like a stone to 27.8, its the lowest since March 2013.

In the UK, retail sales in February were flat YoY after the prior 0.9% increase, below the expected 0.8% increase. Ex-fuel sales were up 0.5% YoY after the prior 1.3% increase, well below the expected 1.1% increase. This was the weakest year-over-year performance in 7 years.

Loans to households in the Euro Area rose 3.8% YoY in February, matching expectations and up from the prior 3.7%. This was the sharpest advance in lending since December 2008. Private sector credit growth, including households and non-financial corporations rose 3.7%, down from the prior 3.8%.

Stocks to Watch

Companies withdrawing guidance:

  • Terex (TEX)
  • American Axle (AXL)
  • Deluxe (DLX)
  • Outfront Media (OUT)
  • SunPower (SPWR)
  • Boyd Gaming (BOYD)
  • Avalon Bay (AVB)
  • Hanesbrands (HBI)
  • MasterCraft (MCFT)
  • Wyndham Destinations (WYND)
  • Carter Holdings (CRI)
  • American Outdoor Brands (AOBC)
  • Element Soutions (ESI)
  • Embraer SA (ERJ)
  • ABM Industries (ABM)
  • Independence Realty Trust (IRT)
  • Analog Devices (ADI)
  • Caterpillar (CAT)

Other quick hits:

  • Designer Brands (DBI) announced it has implemented temporary leaves of absence for over 80% of its workforce
  • Nordstrom (JWN) is extending its temporary store closure for at least one week and will furlough a portion of corporate employees for six weeks starting April 5
  • AMC Entertainment (AMC) has put all of its corporate employees on furlough
  • Meritor (MTOR) is temporarily halting production at most of its commercial truck facilities in North America, South America, India, and Europe
  • Tailored Brands (TLRD) announced it will furlough all US store workers as well as a "significant portion" of its distribution and office workers and extend its store closures until May 4
  • Airbus (EADSY) is reducing aircraft wing production for three weeks.

According to a report from Eater Los Angeles, The Cheesecake Factory (CAKE) informed all of its landlords due to a "severe decline" in restaurant traffic it won't be able to make rent payments due on April 1 for any of its storefronts. Your authors have been concerned with mall-based REIT companies such as Simon Property Group (SPG) and EPR Properties (EPR) given the shift to digital commerce, but with rising retail store closures and falling restaurant traffic metrics being reported, odds are rather high The Cheesecake Factory won't be the only company struggling to make rent payments.

Alaska Airlines (ALK) intends to reduce its flight schedule for April and May by approximately 70% following historic an unprecedented coronavirus inspired falloff in demand. The company also announced the suspension of its dividend.

Other companies announcing the suspension of their dividend last night and today include:

  • Granite Point Mortgage (GPMT)
  • MFA Financial (MFA)
  • Summit Hotel (INN)
  • Boyd Gaming (BOYD)
  • Petrobras (PBR)
  • Tapestry (TPR)

And reductions:

  • City Office REIT (CIO) cut its quarterly dividend to $0.15 per share per quarter from $0.235 per share per quarter
  • Sabra Health Care REIT (SBRA) slashed its quarterly dividend to $0.30 per share from $0.45
  • Noble Midstream Partners (NBLX) reduced it quarterly distribution by 73% to $0.1875 per unit

Shared of Macy's (M) slumped after S&P lowered all of its ratings on Macy's, including the issuer credit rating to 'BB' from 'BB+'. Even though Ford Motor (F) is eyeing restarting production at some North American plants as early as April 6, S&P reduced its rating on the company to "BB+" and placed the company on credit watch negative. Moody's has downgraded Toyota Motor (TM)Honda (HMC)Nissan (NSANY) and Yamaha (YAMCY), and placed all those ratings on review for downgrade. There is no doubt that ratings downgrades will continue, which means further pressures on corporate credit, which you may recall, has seen the highest percentage of bonds just one notch above junk in history. A downgrade cycle quickly becomes a spiral of doom as portfolio managers are forced to sell bonds that drop into junk category. Who will be there to buy them and how many can be absorbed?

Gap (GPS) and Canada Goose (GOOS) have committed to making masks and gowns for hospital workers, and gowns for patients. Amid so much suffering, the companies that are stepping up to help save lives are truly inspiring.

Shares of Apple (AAPLdipped yesterday on speculation the company may delay its 5G iPhone launch speculated for September 2020 by a few "months." 5G is part of your authors' Digital Infrastructure investment theme, and while the impact of the coronavirus may delay the launch of 5G networks and related devices, we continue to see those launches more as "when" than "if." We suspect that in the aftermath of the pandemic, we will likely see more creative work situations as employers look to cut costs wherever possible, which could lead to more people working remotely and more services (medicine, education, and training) being provided virtually.

Slack (WORK) reported its simultaneously connected users increased from 10.5 million on March 16 to 12.5 million on March 2.

After US equity markets close today, investors will be eyeing quarterly results from GameStop (GME), Jefferies (JEF), KB Home (KBH), Lululemon Athletica (LULU) and SAIC (SAIC). Readers looking to get the lowdown on those reports and others to be had this week should visit Nasdaq's earnings calendar page.

On the Horizon

  • Upcoming IPOs:
  • Dates to mark:
    • April 10: US equity markets closed for Good Friday
    • April 28-29: Federal Reserve FOMC meeting
    • April 30: European Central Bank rate decision
    • May 12-14: Google I/O Developer Conference
    • May 25: US stock market closed for Memorial Day

Thoughts for the Day

"Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies." ~ Groucho Marx

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Chris Versace

Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.

Read Chris's Bio

Lenore Elle Hawkins

Lenore Elle Hawkins serves as the Chief Macro Strategist for Tematica Research. With over 20 years of experience in finance, her focus is on macroeconomic influences that create investing headwinds or tailwinds. Lenore co-authored the book Cocktail Investing and in addition to her Tematica work, provides M&A consulting services for companies in Europe looking to expand globally. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.

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