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Weekly Wrap: Financials rose, but ignored jobless claims

Jul. 11, 2020 11:49 AM ETFinancial Select Sector SPDR® Fund ETF (XLF)XLF, BAC, JPM, C, WFCBy: Kim Khan, SA News Editor46 Comments
  • The week on Wall Street ended with a surprising day of trading. What looked to be a day of consolidation at outset, with little movement from the flatline, turned into day of strong gains by the end as buying enthusiasm increased steadily through the session.

But instead of the stocks that had been leading all week - techs and the beloved megacaps - the beaten-down cyclical sectors Financials and Energy were the best performers (along with recovery subsectors like cruise lines and airlines).  

And while the momentum names gained strength throughout the trading day, Tesla topping $1,500 and Netflix rising sharply, the Financials kept their leadership position and built on gains.

The SPDR Financial Sector ETF (NYSEARCA:XLFrose 3.55% on Friday, with Citi (NYSE:Crising 6.5%, Wells Fargo (NYSE:WFCup 6%, Bank of America (NYSE:BACup 5.5% and J.P. Morgan (NYSE:JPMup 5.5%.

The performance pushed XLF back into positive territory for the week, up 2.1%. It also closed back above the 50-day SMA of $23.16 it’s been bouncing around.

Gilead’s encouraging remdesivir numbers Friday buoyed the kind of recovery hopes that will help financials and interest rates. But the positive jobless claims numbers, with employment crucial to financial stocks, were no help at all to XLF as it fell 2.1% on Thursday.

The weekly initial claims figures, which have become one of the most important indicators during the pandemic for its timeliness, were strong. Claims rose by 1.31M, down from 1.41M and below expectations of 1.38M. Continuing claims fell to 18.1M, below forecasts of 19M, the fifth-straight week of drops, bringing them to a two-month low.

But apart from a small pop in futures ahead of the numbers, they had little effect. 

The market may be less enthusiastic about the numbers because of the confusion about the $600 federal unemployment benefit payments and how many claims are from people applying multiple times but have yet to receive the cash. 

On his Calculated Risk blog, Bill McBride noted that we may be “starting to see some layoffs associated with the end of some early Payroll Protection Plan participants” and soon be seeing layoffs associated with rising COVID cases and re-closings of bars and restaurants.

Looking beyond claims, a few reports noted some weaknesses in what are widely considered extraordinarily good rebound employment figures.

The Richmond Fed reported that online job postings are back on the decline and still far below pre-pandemic levels. Postings gathered by Chmura Economics and Analytics from over 30,000 sites showed a national decline from a rebound peak set on the week ended June 13. U.S. online job postings now stand -28.9% from the base week ended March 7, back to levels seen in May.

And a Gallup Poll noted that the percentage of engaged workers (defined as “those who are highly involved in, enthusiastic about, and committed to their work and workplace”) dropped to 31% from 38%, the biggest drop in the poll since its inception in 2000.

“Even the past recessions of 2001-2002 or 2008-2009, the attack on 9/11 and subsequent aftermath, and prior pandemics have not significantly dented employee engagement in the U.S.,” Gallup said.   

XLF vs. SPY

Under the Radar

Carnival Cruise Lines was the best-performing stock in the S&P 500 on Friday. The company sounded an optimistic note about 2021 in its final Q2 earnings report. 

But immediate problems are mounting. Bloomberg reported this week that the industry’s about 400 ships, which can’t all be in port at once, are a staggering expense when they are idle.

And with cruises on hold, Barbados is offering remote workers a change to relocate to the country for up to a year.

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