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Teflon rally. Stocks rallied on Friday capping off a positive week on optimism, yes optimism, that things will eventually get better or perhaps, things can’t get much worse for the economy. The rally in stocks came despite a record number of job losses in April.
N O T E W O R T H Y
Back to normal… real soon-ish. What a rally it was on Friday, or the whole week for that matter with the S&P500 climbing by +3.5% for the week. It was not so much the magnitude of the rally as much as the fact that the rally came amidst a sea of wicked-bad economic data. The economic numbers we are getting now are just beginning to reflect the first full month of the national lockdown which forced most of the country to work from home... those that were not laid off. Speaking of that, Friday's rally happened on the very day that the Department of Labor Statistics reported that a record number of Americans lost their jobs in April. Specifically, -20.5 million! As a point of reference, that is almost 3 times as many jobs lost in the last recession… in just one month. Ugly as it was, it was largely expected, only coming in slightly higher than the median of surveyed economists. Taking a closer look at the numbers, we see that the bulk of the job losses were in the Private Service-Providing category with a total of -17.2 million losses. Here are the highlights. Retail Trade accounted for -2.1 million, Professional / Business Services: -2.1 million, Education / Health Services: -2.5 million, and Leisure / Hospitality: -7.7 million (by far the worst hit). The unemployment rate came in at 14.7%, which was better than economists’ expectations. The bulk of the unemployed are those with less than a high school diploma, mirroring the typical breakdown but the gap between the group and the Bachelor’s Degree+ category is significantly higher. The numbers are truly staggering and many economists believe that they will get worse before they get better. WHILE YOU SLEPT the Administration's Kevin Hassett said in an interview that the unemployment rate may reach 20% in May or June while Stephen Mnuchin said that the real rate may be closer to 25% already. Mnuchin’s admission was underscored by Fed Governor and policy dove Neel Kashkari, who stated in his weekend interview that the worst is yet to come and that the real unemployment rate may be 24%. Wow, that is a bunch of heavy, non-flattering facts about the most recent state of the US economy. So why the rally, then? Well, as always, one can find some facts that support an alternative position in the markets. In other words, when it comes to the economy or the markets, nothing is clear cut or certain. In this case, the silver lining came in the jobs report which showed that many of the recently unemployed expected to get their jobs back when things begin to pick up. Additionally, 30% of those who applied for unemployment benefits have already found new employment. That is good news, and the nature of this recession-by-design certainly gives some credibility to its temporary nature. However, it should be cautioned that the process of rehiring or, more importantly, the time it will take to get all of those jobs back remains a big unknown in the equation, never mind when the the economy will start to pick up again. Some more good news is the use of the word “when” and not “if”. Long term investors can take some comfort that the economy will turn around at some point. The biggest challenge for long term investors right now is to focus on the quality of their portfolios while avoiding the temptation of the daily ups and downs which are fueled by speculative traders. Stay positive, stay focused… stay healthy!
THE MARKETS
Stocks rallied on Friday despite bad jobs data as investors were encouraged by the “temporary” nature of the losses. Investors were also encouraged that Administration officials reportedly had a productive call with Chinese trade negotiators, leaving them hopeful that the once-heralded Phase One trade deal can be accomplished. The S&P500 climbed by +1.69%, the Dow Jones Industrial Average traded up by +1.91%, the Russell 2000 jumped by +3.64%, and the Nasdaq Composite Index rose by +1.58%. Bonds slipped on Friday and 10-year treasury yields climbed by +4 basis points to 0.68%.
NXT UP
- Atlanta Fed President Raphael Bostic will speak today.
- This morning Zimmer Biomet, Univar Solutions, and Bluebird Bio beat expectations while Park Hotels & Resorts, Continental Resources, Coty Inc, Madison Square Garden, and Marriott International missed earnings estimates. After the bell we will hear from Energy Transfer Partners, Caesars International, Eldorado Resorts, and Inovio Pharmaceuticals.
- The week ahead will feature yet more earnings along with inflation numbers, Retail Sales, Industrial Production, Empire Manufacturing Index, Weekly Initial Jobless Claims, JOLTS Job Openings, and the University of Michigan Sentiment Indicator. Please refer to the attached economic and earnings calendars for details.
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