Unemployment claims in the U.S. continue to sharply increase as businesses struggle to deal with the economic pressure from the pandemic. The stock market is hinting at the start of a new downtrend after a week of rallying.
The U.S. stock market fell by 1.59% on May 20, marking its first significant pullback in over a week.
U.S., China, and U.K. Unemployment Claims Soar, Putting Stock Market Rally in Jeopardy
The U.S., China, and the U.K., among many other major economies, are seeing a rapid upsurge in jobless claims.
The reopening of the economy has not shown a positive effect on curbing unemployment levels.
China, the U.K., and the U.S. ambitiously began allowing factories to open, preparing the majority of the general population to reenter the workforce.
But, within a month since such efforts, China locked down more than 100 million people in its Northeast region.
The cautious stance of businesses is leading to stalled hires and companies are not rushing to expand, despite the strong recovery of the stock market earlier this month.
According to data from BNP Paribas obtained by Bloomberg, job losses in China likely exceed 50 million with the unemployment rate hovering at 12%.
Even with a government-supported program, the U.K. is expected to see an unemployment rate of 20%.
The U.S. stock market is seemingly pricing in a quick economic turnaround in the near-term as the nation stabilizes in the aftermath of the coronavirus pandemic.
Economists, however, do not believe a v-shape recovery is imminent.
Stanford University economics professor Nicholas Bloom found in a study that 42% of layoffs in the U.S. will result in permanent unemployment.
Bloom wrote:
We find 3 new hires for every 10 layoffs caused by the shock and estimate that 42 percent of recent layoffs will result in permanent job loss. Our survey evidence aligns well with anecdotal evidence of large pandemic-induced demand increases at some firms, with contemporaneous evidence on gross business formation, and with a sharp pandemic-induced rise in equity return dispersion across firms.
That means, with more than 36 million jobs lost within merely two months, Bloom sees at least 15 million jobs becoming a permanent loss.
Previously, billionaires like Mark Cuban warned that the U.S. stock market is not assuming worse case scenarios of the pandemic and the economic consequences it may have.
As various studies and data increasingly suggest a low probability of short-term economic prosperity, the stock market may see a healthy correction as it approaches the third quarter.
European Ministers Warn No Quick Economic Rebound
The U.S., the U.K., and the eurozone are relying on aggressive fiscal policies and stimulus to boost the stock market and the economy as much as possible.
Initially, finance ministers in Europe and the U.S. aimed for a quick economic rebound.
But, changing spending habits, consumer trends, and declining industries such as travel and fashion have left the authorities nervous about short to medium-term economic projections.
The U.K. Chancellor of the Exchequer Rishi Sunak said:
It takes time for people to get back to the habits that they had, there are still restrictions in place.
The lack of appetite of businesses to rehire employees and rising risks of a second coronavirus outbreak raise the probability of a new stock market downtrned.
This article was edited by Samburaj Das.
