Stock market can’t hold on to gains amid weak economic reports

San José, CA – U.S. stocks couldn’t hold on to early gains, November 21, as their attempt to bounce after two days of large losses largely fizzled. The Dow Jones Industrial Average, which had gained more than 200 points in early going, actually ended with a tiny loss, while other averages were able to hold on to small gains of less than 1%. Despite this break from heavy losses, the U.S. stock market is off to its worst start for the third quarter (October to December) since the 2008 financial crisis.

One factor that may have held back stocks was a slew of weak economic reports. Claims by newly jobless workers for unemployment insurance rose, when the numbers were expected to fall. A survey of consumer sentiment also weakened, especially among high-income households that have been hit the hardest by recent stock market declines. But this group brings in more than half of total income, and any cutbacks in their spending could hit the economy hard. Sales of existing homes for October show that sales are now down more than 5% as compared to a year ago.

Perhaps most worrisome was the report for orders for durable goods in October, which includes machinery used by business. This report showed a 4.4% drop, much larger than expected. But declines in business investment in plant and equipment can lead to a recession, as was the case in 2001 when the tech wreck knocked back spending on computers, routers, fiber optic cable and other equipment used to build out the internet. The revision to the September report to show a small loss means that this key indicator has fallen in three out of the last four months. This follows a small decline in business investment spending in the third quarter (July to September). The weakness in durable goods orders shows that at best, Trump’s big corporate tax cut has gone to shareholders and executives and not into expanding businesses, and at worst, is suggesting a recession in the not too distant future.