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Renewed Economic Concerns Weigh on Stock ETFs

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U.S. markets and stock exchange traded funds dipped Thursday as fear over a spike in coronavirus cases mounted with new data revealing rising levels of unemployment claims further adding to economic concerns.

On Thursday, the Invesco QQQ Trust (NASDAQ: QQQ) was down 0.8%, SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) dropped 0.6%, and SPDR S&P 500 ETF (NYSEArca: SPY) fell 0.6%.

Market observers are concerned that nascent economic recovery may be derailed by a spike in new Covid-19 cases if more U.S. states begin to reinstate lockdown measures and limit business activity. The jump in domestic coronavirus cases has already forced states like California to shut down again, renewing fears of more business damage and slowing the ongoing rally in equities.

“It’s just a tug of war,” Esty Dwek, a strategist at Natixis Investment Managers, told the Wall Street Journal. “None of these risks look like they will entirely derail the recovery or rally, but you have to get over these hurdles to get the next leg up, and right now we still have a few of these hurdles to pass.”

Furthermore, updated figures on U.S. jobless claims showed 1.3 million Americans filed for unemployment in the week ended July 11, further weighing on market sentiment. While weekly numbers of new unemployment claims have slowly fallen in recent weeks, the number of claims still remain at historically high levels.

“The key issue now is concern about a new wave of infections and the potential impact on the economic recovery,” Andrew Hunter, senior U.S. economist at Capital Economics, told the WSJ.

Nevertheless, some traders are already beginning to bet on a broad recovery as they shift toward cyclicals and areas of the market where valuations look cheap.

“This is an early indication of good signs that money is now flowing away from completely overbought Nasdaq into those names that will bode well when the economy starts finding more of a solid footing,” Andrew Smith, chief investment strategist at Delos Capital Advisors, told Reuters.

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