Remember last week. Stocks rallied despite the news that initial claims for unemployment hit a record high of 3.28 million. The markets decided to look past the unemployment number and focus on the positive in the passage of a $2.2 trillion coronavirus rescue bill by Congress.
How about this week?
The report of new claims for unemployment to be released tomorrow is likely to be bad. Economists are projecting somewhere between 3 million and 5.5 million workers filed initial claims for unemployment in the past week.
But the market already dropped today in anticipation of that bad news.
Could stocks rally again on Thursday if the initial claims report is down near the 3 million end of the projected range and not near the top at 5.5 million? (I should mention, of course, that there is the possibility that the actual number will be even higher than the worst case scenario from economists.)
I think the odds of a rally tomorrow on a optimistic bad news scenario are small, however, for two reasons.
First, the sell off today–4.41% on the Standard & Poor’s 500–wasn’t a big enough drop, in my opinion, to produce a rally just on a belief that stocks are now, for one day only perhaps, oversold. I didn’t see panic selling that would bring the traders and the algorithms rushing into the market to snap up bargains.
Second, tomorrow’s report on initial claims for unemployment will be followed on Friday with the March jobs numbers. That’s likely to show an economy on a path toward quickly rising unemployment. I think a lot of traders will opt not to stand in front of that train for Friday.
And frankly, if I’m wrong and we do get a trading rally tomorrow, I’ll be using it as an opportunity to do a bit more selling.
