The Dow dipped 218.45 points, or 0.91% to close at 23,664.64. The S&P 500 closed 0.7% lower at 2,848.42. And the Nasdaq Composite advanced 0.51% to 8,854.39.
Stocks fell on Wednesday as investors weighed the potential of the U.S. economy reopening amid more dismal employment data.
A report from ADP and Moody’s Analytics showed private payrolls were cut by 20.2 million last month. That was the worst report in the data series’ history. Still, it was not as bad as a Dow Jones estimate of 22 million job losses.
The data comes as the U.S. tries to gradually reopen its economy. California will permit clothing stores, bookstores and flower shops to do curbside pickup as soon as Friday. And New York plans to ease restrictions on manufacturers, construction, and select retailers next week.
Big tech rises.
Gains for some of the largest technology companies provided a floor for the broader market on Wednesday. Facebook shares gained 0.68%, while Amazon advanced 1.44%, and Netflix rose 2.26%.
What happens next?
Weekly jobless claims are on deck for Thursday along with JetBlue earnings. Hilton, Uber and Roku are also among the companies set to report earnings.
A Deep but Short Recession?
Last summer, when the U.S. had notched a decade of economic recovery and unemployment stood at 3.7%, Campbell Harvey, a professor of finance at the Fuqua School of Business at Duke University, predicted a recession for 2020 or early 2021.
Why? Because the yield on the three-month Treasury bill was higher than the yield on the five-year Treasury note for the entire second quarter of 2019. That “inverted yield curve” had been the harbinger of the previous seven recessions. Harvey first identified the inverted yield curve’s predictive power in his 1986 doctoral dissertation at the University of Chicago.
So, here we are in what could be the deepest recession since the Great Depression, triggered by a global pandemic and governments’ unprecedented actions to prevent its spread.
What does Harvey expect for the U.S. economy now? He sees this recession hitting deep but being short — with the economy in recovery mode by the end of this year.
“In the global financial crisis [in 2008-09], we never could tell when it was going to end,” he said in a telephone interview. This time, he said, “the cause is clear — it’s a biological event, and the solution is also clear: another biological event.”
He doesn’t anticipate the V-shaped recovery that Wall Street touted a few weeks ago. “I think it’s more what I call the ‘skinny U,’ because I do believe that we will have a vaccine by the first quarter [of 2021],” he said.
Harvey’s recession call was more pessimistic than most forecasters at the time, who saw no recession for this year. So the question is, would the recession have happened without the pandemic?
“We’ll never know the counterfactual,” he said. “The inversion was moderate, so I think that we were headed towards a mild, short recession. Then the COVID-19 pandemic struck and changed everything.”
Indeed. Harvey considers the novel coronavirus an accelerant of underlying trends resulting in this recession, which he thinks began in the first quarter of 2020. We’re going through the worst of it right now.
“Think of the second quarter as the worst quarter of [GDP] growth that the U.S. has ever experienced, historically,” he said. “It could be 30% negative on an annualized basis. The third quarter, it’s hard to imagine getting worse than where we are.”
Harvey adds that he can see some green shoots just in time for winter, as coronavirus treatments emerge and the world gets closer to testing and deploying a vaccine. “A vaccine is the solution in terms of reducing all of the uncertainty. A vaccine means ‘all clear,’” he said. ”If we’ve got some pharmacological solution that reduces the risk of death, that’s also incredibly helpful.”
Going For The Gold
Gold futures are talking a hit at mid-session on Wednesday, pressured by a stronger U.S. Dollar and expectations that gold supplies will grow. Bullion refineries are resume operations, and there is a gradual improvement in investor risk appetite as countries have begun to ease coronavirus restrictions.
Prices opened steady but fell after two of the world’s biggest gold refiners said they are restoring almost all operations. This ended six weeks of closures that disrupted global gold supply and helped drive prices in New York and London further apart than they have been in decades.
At 17:02 GMT, June Comex gold futures are trading $1688.30, down 25.80 or -1.62%.
Daily Swing Chart Technical Analysis
The main trend is down according to the daily swing chart. A trade through $1676.00 will signal a resumption of the downtrend. A move through the last swing bottom at $1666.20 will reaffirm the downtrend.
The main trend will change to up on a trade through $1737.00. This is followed by the next swing top at $1764.20.
The short-term range is $1788.80 to $1666.20. Its 50% level at $1727.50 is resistance.
The intermediate range is $1576.00 to $1788.80. Its retracement zone at $1682.40 to $1657.30 is support. This zone stopped sellers at $1666.20 on April 21 and $1676.00 on May 1.
The main range is $1453.00 to $1788.80. Its retracement zone at $1620.90 to $1581.30 is major support.
Daily Swing Chart Technical Forecast
Based on the early price action and the current price at $1688.30, the direction of the June Comex gold futures market into the close on Wednesday is likely to be determined by trader reaction to the 50% level at $1682.40.
Bearish Scenario
A sustained move under $1682.40 will indicate the presence of sellers. This could trigger a quick break into the minor bottom at $1676.00, followed by the main bottom at $1666.20 and the Fibonacci level at $1657.30.
Bullish Scenario
A sustained move over $1682.40 will signal the presence of counter-trend buyers. If the buying generates enough upside momentum then look for a possible test of the wall of resistance at $1726.00, $1727.50 and $1737.00.