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Stocks bounce as Wall Street braces for Election Day

US stocks were set to rebound from a week of deep losses on Monday as investors prepared for Tuesday’s contentious presidential election.

Futures contracts tied to the Dow Jones industrial average climbed 445.00 points, or about 1.7 percent, to 26,839.00 as of 6:49 a.m. after fears about surging coronavirus infections around the world drove the blue-chip index to its worst week since March.

Futures for the benchmark S&P 500 index were similarly up 1.4 percent as of 6:50 a.m., while futures on the tech-heavy Nasdaq 100 were up roughly 1.2 percent, putting Wall Street on pace to follow gains in global markets after the opening bell.

Monday’s boost appeared fueled by strong economic data from China showing that country’s manufacturing activity expanding for the eighth straight month in October. That counterbalanced market jitters after Germany, France and the UK brought back lockdowns to control the spread of the deadly coronavirus.

But investors are also bracing for all the uncertainty that Election Day could bring. Joe Biden is ahead of President Trump nationally but the race is tighter in key battleground states, raising the possibility that a winner won’t be determined for days or weeks as election officials count large numbers of mail-in ballots cast amid the COVID-19 pandemic.

“A couple of fund manager surveys floating around the markets still have ‘contested election’ right up there with ‘COVID-19’ as the most significant market risks right now,” said Stephen Innes, chief global market strategist at Axi. “The nervousness in asset markets going into Tuesday makes sense.”

Oil prices, however, took a hit Monday as the new lockdowns fueled concerns about demand for energy falling further. Prices for West Texas Intermediate crude oil dropped about 2.6 percent to $34.84 a barrel as of 6:51 a.m., while Brent crude was recently down about 2.2 percent at $37.12 a barrel.

With Post wires

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Dow jumps 150 points on tech bounce, but still headed for 4-week losing streak

The Fearless Girl statue is seen outside the New York Stock Exchange (NYSE) in New York City, New York, U.S., June 11, 2020.

Brendan McDermid | Reuters

U.S. stocks rose on Friday as tech shares recovered some of their declines for the month. However, Wall Street was still headed for its fourth consecutive week of losses. 

The Dow Jones Industrial Average traded 151 points higher, or 0.6%. The S&P 500 climbed 0.9%. The Nasdaq Composite popped 1.4%.

Shares of Amazon rose 1.3% and Facebook gained 0.9%. Apple advanced 2.4% and Microsoft climbed 1.8%. Netflix traded 0.8%. The S&P 500 tech sector jumped 1.4%.

Cruise operators also contributed to Friday’s gains. Carnival, Norwegian Cruise Line and Royal Caribbean were up 8.7%, 11.2% and 7.4%, respectively, after an upgrade from a Barclays analyst. 

The “sell-off has stabilized a bit over the last few days, but there are still no real signs of strength,” said Mark Newton, managing member at Newton Advisors, in a note. “Thus, the trend remains bearish and not much to bet on a rebound.”

For the week, the Dow was down 2.6% while the S&P 500 has lost 1.5%. The two market benchmarks were headed for their first four-week losing streak since August 2019. The Nasdaq eked out a small week-to-date gain. 

The major averages have also had a tough month, with the S&P 500 falling more than 6% in September. The Dow has dropped 5.2% over that time period and the Nasdaq is down 8.2% month to date. 

“After a buoyant and hopeful summer, financial markets are cooling in the face of reality,” strategists at MRB Partners said in a note. “High-flying tech and tech-related stocks are in a full-blown correction, and weakness has recently spread to broader indexes, with a distinct smell of risk-off in the air. We had expected a gradual, albeit choppy, economic recovery, but it appears that some investors were not prepared for setbacks along the way.”

Much of September’s losses have been concentrated in mega-cap tech stocks, which carry a heavy weight in the indexes. Shares of Apple — the largest publicly traded company in the U.S. by market cap — have dropped more than 14% this month. Microsoft, Alphabet, Netflix, Amazon and Facebook are all down at least 8.5% over that time period. 

Russ Koesterich, managing director and portfolio manager at BlackRock, said on CNBC’s “Closing Bell” on Thursday that his team took profits in some high-flying tech stocks at the end of August and then were buying more cyclical stocks during the recent drop for the market. 

“What we’ve been trying to do in recent weeks is take the cyclical exposure up a little bit … it’s not that we think tech is going to roll over. We still like the themes. But on a shorter-term tactical basis, we’re comfortable with the economy, we think we’re going to continue to see improvement, and we’re looking for names that are levered to that improvement,” Koesterich said. 

The state of the economic recovery has become a hot topic in recent weeks on Wall Street, especially after the death of Supreme Court Justice Ruth Bader Ginsburg led many strategists to downgrade the chances for another relief package before the election. On Thursday, Goldman Sachs cut its fourth-quarter projection for gross domestic product growth to 3% on an annualized basis, down from 6%. 

House Democrats are preparing a $2.4 trillion relief package that they could vote on as soon as next week, a source familiar with the plans told CNBC. The bill would include enhanced unemployment benefits and aid to airlines, but the overall price tag remains well above what Republican leaders have said they are willing to spend. 

—CNBC’s Jacob Pramuk contributed to this story. 

CORRECTION: A previous headline for this report was updated to note that Dow futures were higher, rather than the Dow Jones Industrial Average itself.

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Jobs after coronavirus: The US labor market won’t bounce right back

It will take the labor market time to recover, but it’s unclear exactly how long.

The leisure, travel and hospitality industries have been hardest hit, but shutdowns have extended far into other sectors, such as manufacturing.

The March jobs report — which doesn’t take the most recent tide of joblessness into account — showed the unemployment rate ticked up to 4.4% from a near 50-year low of 3.5% and could reach double digits in April. Economists at America’s big banks estimate peak coronavirus-related unemployment to hit 15% or more. JPMorgan’s economists are forecasting a peak as high as 20%.

While the US economy is likely in a recession already, experts expect the downturn will be as short as it will be deep.

Once the virus is defeated and social distancing policies let up, the economy will bounce back — at least that is the hope.

For employment, that could mean a rapid rebound as well — for some. But not all jobs will magically reappear at once.

High expectations

When factories resume their regular output, and bars, restaurants and movie theaters finally reopen, many of the jobs that temporarily disappeared are expected to come back.

But this rebound may come at a slower pace than the initial downturn, Aaron Anderson, senior vice president of research at Fisher Investments, told CNN Business.

“Some economic activity has been lost, so companies might not hire back at the same speed,” he added.

Some businesses, particularly smaller ones that are more vulnerable to economic shocks, might fold under the sudden recession, eliminating the jobs they provided jobs altogether. Larger companies, meanwhile, may need to cut costs when they emerge from the crisis, said Simona Mocuta, senior economist at State Street Global Advisors.

“My view is that unemployment will spike, come back, but then take some time to heal,” Mocuta said. “If we make a full recovery, it’s more likely next year than this year.”

Moody’s expects an unemployment rate of 6.5% by year-end, compared with 3.5% in December 2019.

“We expect the unemployment rate to peak in the second quarter, and gradually climb down in subsequent months with a gradual resumption of normal economic activity,” said analysts at the ratings agency on Monday.

But it is hard to predict how the economy will behave in an unprecedented crisis like this with so much uncertainty about the path forward. Much will depend on how long the economy will remain closed, how deep the recession will be and how long the recovery takes.

Changing the world as we knew it

Economists also believe that the coronavirus outbreak and subsequent sheltering in place orders are exacerbating trends that were already unfolding, including the transition to shopping online rather than in stores.

Some brick-and-mortar retail jobs might never come back, said Mocuta, which in turn could affect the commercial real estate market.

Just as the economy will take some time to recover, so will consumer confidence. After weeks or months of social distancing, it might take time for Americans to eat out at restaurants and make travel plans again.

The outbreak also shone a light on America’s benefits, including paid sick leave.

Companies might adopt more worker-friendly benefit policies to protect their employees in case of another outbreak. But this would increase the cost per employee, and might make businesses more hesitant to hire.

On factory floors, where workers are already increasingly competing with robots that never take sick leave, some jobs are expected to disappear altogether over the next decades, as workers are being replaced with machines. Last year, Oxford Economics forecasted that 20 million global manufacturing jobs will be displaced by robots until 2030.

The pandemic could speed up this development further.

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How quickly can the US economy bounce back? That depends on the virus

How quaint that seems now.

So the question is no longer — will we have a recession — but how deep will it be? And how quickly will the economy recover?

You’ll hear economists throw around phrases like V-shape, L-shape and U-shape to describe the range of possibilities.

V-shape: The hope is that, given trillions of dollars in government aid, the economy will be able to flip a switch just as quickly as it shut down. Once the spread of the virus slows businesses will be able to open their doors, people will return to work and the economy will make a speedy recovery. That’s what economists call a V-shaped recession, and some think it’s possible, now that the Federal Reserve and Congress have committed trillions of dollars to rescuing the economy.

But that scenario largely depends on the virus.

Morgan Stanley economists are predicting a sharp economic decline followed by a quick bounce back. They forecast US gross domestic product will contract at an annual pace of 30% in the second quarter, far deeper than any other quarterly decline on record. But after that, they think GDP will grow at a 29% annualized pace from July through September.

As severe as that sounds, that’s actually an optimistic forecast, because no one knows how long it will take the United States to contain the coronavirus pandemic and relax social distancing measures. Morgan Stanley’s prediction assumes the outbreak peaks in April or early May, and businesses reopen shortly afterward.

L-shape: The worst-case scenario is that the virus is not contained, social distancing measures remain in place into the summer, and businesses and consumers will take years to get back up to speed. In that case, the economic recovery could be L-shaped.

That’s what happened after the Great Recession. Economic activity took four years to return to its pre-recession peak. Even then, a majority of Americans still didn’t feel they had recovered.

The Great Depression, which began in 1929, was even more severe and was followed by a painfully slow recovery lasting through World War II. Those L-shape recoveries look more like a hockey stick with a long tail. No one wants an L-shape recovery, and so far, most economists are not predicting this outcome.

U-shape: There’s also an in-between scenario: It’s the U-shaped recession, and it might be the most likely one today.

A U-shaped recession is like a bathtub, Simon Johnson, former chief economist for the International Monetary Fund, once explained.

“You go in. You stay in. The sides are slippery. You know, maybe there’s some bumpy stuff in the bottom, but you don’t come out of the bathtub for a long time,” he told PBS in 2009. In other words, the economy contracts, remains subdued for a while, and then climbs back.

This is a plausible outcome following the coronavirus pandemic for a few reasons.

Businesses, even with government aid, will be grappling with heightened uncertainty about the future. For business owners and managers, the pandemic has made a previously unthinkable situation real. Now that they’ve lived through a scenario where businesses are suddenly shut down en masse throughout the country, that shock could damage their investments and change behavior in the future, making some spend more conservatively.

Although businesses may eventually came back to life after social distancing measures lift, it won’t happen all at once.

As for consumer spending, the largest contributor to US economic activity, that too is unlikely to bounce back immediately. Part of that is due to a decline in incomes, especially for workers who have been furloughed or laid off.

But there’s a psychological impact, too, said Elena Duggar, chair of Moody’s Macroeconomic Board. The coronavirus pandemic has already disrupted human behavior in dramatic ways, ranging from social distancing to panic-buying toilet paper. Consumers will probably be wary of making big purchases even when the economy begins to come back to life. They’re unlikely to suddenly return to their pre-coronavirus levels of spending, Duggar said.

Finally, spending that would have taken place in the second quarter isn’t necessarily going to be made up later in the year. Travelers whose spring break trips were canceled are probably not going to take two summer vacations. Consumers are not going to eat double the meals at restaurants, or go to twice as many movies later in the year, simply because they missed out on those things in the spring.

“There’s going to be a significant part of economic activity that will be lost permanently,” Duggar said.

Nevertheless, businesses and consumers will eventually recover — and could do so more quickly than they did after the Great Recession, Duggar said. Hence her U-shape forecast.

Uncertainty and unknowns

All of this, though — the shape of the recession and its duration — is highly uncertain. And it depends on one big unknown: the course of the virus.

In a recent report, McKinsey consultants and economists from Oxford Economics laid out nine different economic scenarios. In one of the rosier outcomes, in which the virus is successfully controlled and economic restrictions are lifted after two to three months, economic activity falls 8% in the first half of the year, but then rebounds to its pre-pandemic level by the end of 2020.

However, if the virus is not contained within the second quarter, and social distancing measures continue into the summer, McKinsey expects GDP could take more than two years to climb back up to to its pre-coronavirus level.

“If we’re in a situation where we have a third of the workforce not able to go to the work through the summer, you’re going to see a lot of bankruptcies. You’re going to see a lot of corporate debt defaults. The longer this goes on, the more permanent the damage to businesses and individuals,” said Susan Lund, a McKinsey partner and one of the co-authors of the report.

“What it depends on, first of all, is how quickly we can control the virus.”

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