Jobless Claims Spike Unexpectedly, Stock Futures Hold Steady

A new report from the Department of Labor indicates that weekly jobless claims spiked more than expected. What should investors make of this unusual news ahead of trading Thursday?

Weekly jobless claims spiked to 230,000 last week, surprising economists and jolting the economy during a tumultuous week of trading. Analysts point out that the jobless claims are still holding below 2020 averages, indicating that the job market is tight.

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“The underlying trend is still falling; we expect new lows at the end of the month,” writes Pantheon Macroeconomics chief economist Ian Shepherdson. In short, experts think that the jobless claim spike is an outlier, not an indication of a new trend.

Jobless Claims Encourage Analysts

Last week, the Labor Department released its monthly jobs report for December. It showed a surprising improvement in the unemployment rate. The rate of Americans out of work fell to 3.9%, its lowest percentage since February 2020.

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While the economy is adding new jobs and recovering from the worst of 2020’s downturn, economists are still concerned about inflation. Federal Reserve Chair Jerome Powell recently spoke before Congress during his second confirmation hearing. During his remarks, he emphasized the dangers posed by inflation and the importance of the Fed shifting fiscal policy to address it.

“High inflation is a severe threat to the achievement of maximum employment,” Powell told lawmakers on Tuesday. “If inflation does become too persistent — if these high levels of inflation get entrenched in our economy and people’s thinking — then inevitably that will lead to much tighter monetary policy from us, and it could lead to a recession, and that would be bad for workers.”

Stock Market Holds Steady, Inflation Worsens

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The markets held surprisingly steady Thursday morning following the Labor Department’s publication of weekly jobless claims. S&P 500 futures ticked up slightly by half a point, while the Dow added 37 points in pre-market trading. Futures contracts on the Nasdaq marked a 0.05% increase Thursday morning, indicating slight uncertainty mixed with cautious optimism.

Market experts are looking ahead to the end of the week for the annual fourth-quarter results from banks like Citigroup and JP Morgan Chase. Analysts predict that banks will post eye-opening revenues from 2021, as borrowers flocked to financial institutions to get loans with low-interest rates.

Investors are concerned Thursday morning amid news that the producer price index jumped to a 9.7% annual increase in December. This indicates that wholesale prices are nearly 10% higher now than they were a year ago. Retailers will likely pass these increased production costs to customers, fueling further inflation.

Fed Addresses Inflation Concerns

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Analysts have faith in the Fed’s ability to curtail inflation. The central bank has the tools to control monetary supply, after all. Powell can authorize interest rate hikes to absorb excess liquid capital, for instance. The Fed can also taper its spending program to stop sinking money into bonds and other growth assets.

Throughout 2021, Powell maintained that inflation was transitory. The Fed’s stance last year was that inflation was a result of shipping bottlenecks at global ports and that the monetary devaluation would cool off once shipping companies untangled their supply lines. Economists don’t know whether this assessment is correct—the shipping lines are still a nightmare. Powell and the Fed assumed that global logistics organizations would have straightened things out by now.

By December, the Fed became sick of waiting for external forces to correct the monetary supply. In January, the central bank released minutes from its December policy meeting. During that meeting, central bank governors discussed their plans to hike interest rates at least three times in 2022 in an aggressive play to curtail inflation.

“The run of big increases is over, and it will start to fall in March,” Shepherdson wrote recently, anticipating inflation could fall to 4.5% by September. Now that the Fed is tackling monetary devaluation head-on instead of hoping it goes away, market experts are confident that inflation will cool off this year.

Bitcoin Continues to Struggle

Bitcoin took another nosedive Thursday morning. The coin recovered to above $44,000 on Wednesday before crashing again overnight. By Thursday, the digital currency had fallen to $43,400, wiping out modest gains throughout the week. Long-term stakeholders continue to promote the coin as a stable store of value ahead of inflation.

Some crypto enthusiasts are tired of that characterization, though. Mark Cuban, the owner of the Dallas Mavericks, recently said that he doesn’t think Bitcoin will ever be an inflation hedge. “Now do a 1-year performance comparison. I said Doge was good for spending and better than a lottery ticket,” Cuban said on Twitter.

“You still think [Bitcoin] is an inflation hedge? It’s not and never will be. Doge/[Bitcoin] is flat last 30 days,” the millionaire explained. Cuban also disagrees with the common assertion that gold is a good store of value. “Because gold is not an inflation hedge. That’s just a marketing slogan like it is for BTC,” he continued.

Either way, Bitcoin will need a new narrative if enthusiasts want to pull its value back above $45,000 per token.

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