Wall Street aims to build on gains as COVID-era benefits expire

Stocks dipped in early trading on Tuesday, with Wall Street indices hovering close to last week’s record highs, with analysts closely watching the end of pandemic-era jobless benefits and its impact on the labor market as the COVID-19 pandemic clouds the outlook.

Last week, the S&P 500 Index set an all-time high, and the Nasdaq Composite briefly hitting an intraday record, despite August’s jobs data falling far short of market expectations. While payrolls showed the economy creating a relatively slim 235,000 new positions, the data stoked speculation that the Federal Reserve’s Open Market Committee (FOMC) could alter its timetable for scaling back its stimulative bond-buying, which has propped up investor confidence. 

“On balance, we expect the September FOMC statement to confirm the July minutes that tapering can begin later this year,” wrote Marc Chandler, chief market strategist at Bannockburn Global Forex, in a morning research note.

“While the Fed will want to preserve the maximum flexibility, incorporating tapering into the statement would likely count as the ample notice [Fed Chair Jerome] Powell has promised in a way that notification in the FOMC minutes does not,” Chandler wrote, adding that tapering would likely begin in December. 

Meanwhile, Wall Street has begun scaling back expectations for growth. Goldman Sachs cut its forecast for fourth-quarter growth, citing a “harder path ahead” for consumer spending in the face of rising COVID-19 infections.

While the ongoing COVID-19 pandemic fueled by the Delta variant figured prominently in the miss, especially for softness in the leisure, hospitality and bars/restaurant sector, some analysts have also pointed to the labor shortage becoming a drag on jobs creation. A lack of available workers have prompted businesses to hike pay, adjust hours, and even lose some business.

“With respect to no job gains in leisure and hospitality, while I’m not discounting the influence of Delta on consumer behavior for some and the supply problems out of Asia because of Covid dictated restrictions, I’m mostly blaming the lack of workers,” veteran market analyst Peter Boockvar said in a research note to clients on Tuesday.

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He pointed to National Federation of Independent Business data on Friday that showed plans to hire, positions not able to fill and compensation all at 48-year highs, all records for the survey.

Still, investors have been mostly undaunted by the rise of the Delta variant, and dour data. The indexes’ latest march to record highs has been powered by technology stocks, with the Nasdaq extending a run of outperformance from August. 

With the trading week shortened by Labor Day, traders will be keeping an eye on producer prices data for hints at inflation pressures, as well as the end of a crucial source of unemployment insurance during the pandemic.

Under Congress’ Coronavirus Aid, Relief, and Economic Security (CARES) Act, millions of Americans were offered additional unemployment…