Zillow Market Pulse: June 11, 2020

June 11, 2020

A surge in new coronavirus cases in some states and a loss of faith among investors drove the stock market down. Mortgage rates fell to new all-time lows. And the labor market continues to suffer significant losses.

• The stock market has its worst day in three months

  • The S&P 500 fell nearly 6% on a gloomy outlook from the Federal Reserve and dampened investor optimism.
  • Investor confidence fell to its lowest level in almost a month.

• Mortgage rates fall to all-time lows

  •  Average rates for a 30-year fixed loan now sit at 2.94%, according to Mortgage News Daily.
  • Just 6 days ago, rates were at their highest levels in almost a month.

• 2.2 million more claims for unemployment benefits were made last week

  • For the twelfth straight week, claims volume was more than double the worst week of the Great Recession.
  • 35.4 million people are either receiving assistance or will be soon.

 So what?

To say that the stock market has enjoyed a strong run over the last couple months would be an understatement. The S&P 500 was very recently coming off its best-ever 50-day stretch, encouraging a wide variety of investors to enter the market even as the real economy suffered its swiftest collapse in nearly a century and major sectors contracted at the fastest pace on record. The market's improvements were largely thanks to investors' confidence that the Federal Reserve would continue to support market activity and mounting evidence that the still-damaged economy was starting to see signs of improvement. But that investor optimism began wavering recently, and fell sharply today. The CBOE volatility index (aka the "VIX") – a measure of volatility in the stock market and a proxy for investor confidence – spiked today after gradually falling for the better part of two months. There are two main likely causes: The Federal Reserve recently expressed caution about the speed of the economy's recovery; and and signs of a second wave of coronavirus cases began emerging in states including Texas, South Carolina and Arizona. Today's market movements made it clear that while some portions of the economy have improved in recent weeks, we remain a long, long way from normal.

The stock market downturn also contributed to a sharp decrease in mortgage rates, which plummeted over the last few days and now sit at a new all-time low. Following a bumpy ride at the onset of the coronavirus outbreak, mortgage rates have generally spent the last couple months at or near all-time low levels. But in the last week, rates appeared to finally be trending upward as markets responded to a better-than-expected May jobs report and the broader economy showed signs of repair. All that changed in the last few days. Some of this recent market optimism appeared to taper on Monday as markets considered the durability of the recent rally, but the big downward move in rates began on Wednesday as broader economic uncertainty began to permeate markets and the Federal Reserve said it intends to maintain the recent pace of mortgage-backed security and Treasury purchases, putting an end to weekly reductions of this activity.

Labor market data released today backed up this emerging pessimism. The 2.2 million jobless claims filed last week were more than twice the number of claims filed during the worst week of the global financial crisis – a fact that has held true now for 12 straight weeks. More than 35 million people are either receiving unemployment benefits, have applied very recently or have been approved and are awaiting receipt – a more expansive and accurate measure of the number of people seeking unemployment assistance – a remarkably high number given how far into this crisis we have come. Clearly the labor market continues to take massive hits and remains deeply damaged, even though the May jobs report suggested that hiring has begun to pick up and the labor market is trending in the right direction. Some firms may be hiring, but others are definitely still laying people off — or perhaps closing altogether.

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