The Uptick Market Evaluation – Spring in the Market’s Step?
For the week ending on May 8.
The markets just don’t care
The markets have been incredibly resilient. It is hard to grapple with the fact that the major indexes were up this week when we examine the data – especially the critically important Employment Situation Summary released on Friday – better known as the jobs report.
The April jobs report was nothing short of horrific. U.S. employers cut 20.5 million jobs in a month – by far the worst jobs cut on record (dating back to 1939) – with an unemployment rate near 15%. Remember, as recently as February, the unemployment rate was just 3.5%, a half-century low. To make matters worse, this report does not paint an accurate picture, since workers are only counted as unemployed if they are actively looking for work (but many people cannot look due to lockdowns). So … why the positive stock market reaction?
Of the 20.5 million jobs lost, over 18 million of these workers reported that their layoffs were “temporary.” This goes back to last week’s discussion on investor optimism – the market is saying that the worst is behind us and that the U.S. economy is resilient and will quickly recover (remember the V-shaped recovery – a sharp rise back following a sharp economic decline). Investors seem to anticipate a quick recovery and a smooth re-opening of the economy; although, many economists disagree and think that the markets are not appropriately contemplating the potential depth of the recession. Even so, the stock market is forward-looking while the jobs report is backward-looking, so when things improve from awful to better, it is enough to send stocks higher.
While the jobs data was horrific, there was also some non-economic, virus-related data which encouraged investors. Covid-19 testing capability increased significantly this week, and virus numbers in some major U.S. cities, like New York City, are declining.
Lastly, as corporate earnings season continues, some companies have seen glimmers of positivity in the recessionary environment – known as “green shoots.” The “green shoots” mentioned primarily have been anecdotal; the real telltale signs come when companies project future revenue and profitability. Right now, the future is so murky that only 40% of reporting companies have discussed projected future performance.
Still, the market’s optimism seems more focused on these positive signs rather than the negative hard data.