Main Street's Pain, Wall Street's Gain

Abstract

When Initial Jobless Claims (IJC) are higher than expected, investors may expect more generous federal government support and drive up aggregate stock prices through the expected cash flow channel, leading to a novel ``Main Street pain, Wall Street gain'' phenomenon. Our empirical investigation shows that this phenomenon emerges when news articles on IJC announcements mention fiscal policy keywords more. During the COVID-19 period, firms/industries that get mentioned more in stimulus bills, have higher obligated funding amounts, or are expected to suffer more in fundamentals show higher stock returns when bad IJC news arrives. Labor news is one driver of fiscal policy expectations.

Keywords: return dynamics, macroeconomic news announcement, fiscal policy expectation, Covid-19, textual analysis, cross section

JEL Classification: G12, E62, E63, H3