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Leisure, hospitality, retail sectors continue to struggle as unemployment rate ticks down to 7.9%

Yahoo Finance’s Alexis Christoforous and Brian Sozzi discuss the September jobs report and the President Trump’s COVID-19 infection with Oxford Economics Chief U.S. Economist Greg Daco, and Invesco Chief Global Market Strategist, Kristina Hooper.

Video Transcript

ALEXIS CHRISTOFOROUS: I want to bring in Greg Daco again and Kristina Hooper to talk more about the job report and also this positive test from President Trump and Melania Trump for COVID-19. Greg, I want you to talk more about permanent job losses, because this latest report shows they are piling up. They're rising at a faster pace than the 2007, 2009 recession. What will the long-term implications be for the job market and for this recovery that we see now is clearly stumbling?

GREG DACO: Yeah, I think that's absolutely right to focus on that very factor, because what we're seeing is that the share of individuals that are on permanent layoff is now half of the share of people that have lost their jobs. And that is very important, because the longer we go in this situation and the slower the recovery is, the more likely we're going to see a lingering impact on people's activities, on people's spending pattern. In this environment with a very partial recovery so far and a lot of people on the sidelines, this is going to restrain economic activity and prevent us from getting back to where we were pre-COVID rather rapidly, hence we need to support these individuals that have lost their jobs, that have seen reductions in hours, that have seen cutbacks in wages.

We need to see further aid to ensure that this economic wave in the wake of the health wave does not become deeper. That's what we're seeing today. This economic wave is impacting a lot of rehiring decisions. It's also impacting a lot of decisions at the state and local budget level. And that's why we saw today 280,000 job losses on the state and local education front.

BRIAN SOZZI: Kristina, you do this long enough and there's a certain feel to the market. You can pick up how certain stocks are trading, how the S&P 500 could trade. Given the convergence of events we've had over the past day and a half, especially this morning, does it feel like we could see a sharper sell off in stocks this session into the early-- and into the early part of next week?

KRISTINA HOOPER: Well, I think we could see something of a selloff, although I do believe that the Fed is providing a very powerful put under stocks in general, just as it did during the global financial crisis. What typically happens with this kind of powerful news flow is that it directs investors to make an assumption about the shape of the economic recovery. On good days, when we get news about possible developments with vaccines or therapies, that brings investors to the assumption that it is going to be more of a V-shaped recovery, and they typically move to the more cyclical names in the stock market.

And on days when the news is disappointing and suggests a slower growth environment, that typically drives investors to the secular growth and defensive names in the stock market. So we could see a day in which stocks fall or remain relatively flat by the end of the day, especially if we get some positive statements from the Fed or something like that. But it could just be that bathtub effect, where the money moves to the more defensive growth, the secular growth names as opposed to the cyclicals.

ALEXIS CHRISTOFOROUS: Greg, what do you make of the breakdown of industries in this report? What does it say about economic dynamics? Because we had construction, particularly residential, car dealers, transportation, warehousing all experiencing job gains. The big losers were in government, specifically education and federal workers. What does that tell you?

GREG DACO: I mean, broadly, this jobs report points to this K-shaped recovery. This has been a key theme in this recovery, in that the fact that those that have the means to spend will be able to do so, provided they are not spending on face-to-face activities where their health is put at risk. Those that do not have the means, that perhaps were supported by fiscal stimulus, are increasingly going to face a dire situation. And that's why you're seeing some sectors of the housing segment doing better, some people that have the means to buy cars doing so. But other sectors really struggling quite a bit.

The losses of jobs in the leisure and hospitality sector, in the retail sector, even in the arts and recreation sectors are not coming back. And the state and local government budgets are really being strained. And that is going to hurt teachers, health workers, safety workers. And that is the type of job loss that you do not want to see, because it's likely to last for quite some time and hurt us all in our daily activities.

ALEXIS CHRISTOFOROUS: Greg, Kristina just mentioned the Fed a moment ago, saying that the Fed's basically got our back. But what more can they do in the face of this job market right now? Isn't it really all up to fiscal policy?

GREG DACO: From a labor market perspective, I think yes, it's largely in the hands of Congress today. Yes, the Fed has provided a lot of accommodation. It actually has acted very early, very fast, and very strongly in preventing further tightening of financial conditions at the worst of this crisis.

In today's environment, we're really looking for additional fiscal aid to try to support the recovery and ensure that this recovery is as sustainable and strong as possible. So yes, the ball really lies in Congress' court. The Fed should and will continue to act and stand by the economy to provide support as needed. But really, in terms of additional aid to the economy, you're looking at Congress.