Jobs Market Stunner
This morning at 8:30 a.m. the Labor Department released the May jobs report. From CNBC:
Employment stunningly rose by 2.5 million in May and the jobless rate declined to 13.3%, according to data Friday from the Labor Department that was far better than economists had been expecting and indicated that an economic turnaround could be close at hand.
Economists surveyed by Dow Jones had been expecting payrolls to drop by 8.33 million and the unemployment rate to rise to 19.5% from April’s 14.7%.
“The glimmer of hope in that [April] report, as awful as it was, was that 78% of the people who lost their jobs believed that loss would be temporary,” Clemons said. “It turns out that optimism seems to have been warranted. As the economy responded and people went back to work, the jobs were still there.”
After the results were announced the guests on the CNBC panel were speechless, as they should have been. A jobs gain of 2.5 million when expectations were for a jobs loss of over 8 million was shocking to everyone. The stock market soared with the Dow up almost 1,000 points for much of the day. In our video earlier this week we pointed out that it wouldn’t be surprising to see stocks continue to move higher with nearly $5 trillion in cash and retail investors still bearish. We suspect that today some of those investors who got out of the market in March and had been waiting on a pullback are throwing in the towel and buying stocks based on the jobs report.
A Few other observations:
1) The rate on the 10-year Treasury jumped up to .91% on the brighter economic outlook. Coming into the week the rate was at .64% so the move higher has been quite significant. Obviously, rates are still very low, but we have pointed out over the last several months that a move higher in rates would be a welcome development, indicating the market was growing more optimistic about the strength of the economic recovery.
2) Ever since the price of oil went into negative territory in April it has been on a tear. Today the price is just shy of $40. Again, this is a positive sign that demand is bouncing back faster than expected and is also good news for the jobs picture in the energy sector.
3) Over the last few weeks economically sensitive stocks like banks, energy and industrials had led the market higher and had some investors scratching their heads given the economic carnage that took place. With the blockbuster jobs report today, we have another example of the market sniffing out future developments before they became evident to investors.
4) While states like Georgia, Florida and Colorado were ridiculed by many who believed they were opening too early and would lead to a major surge in new coronavirus cases and deaths, it was those reopenings that allowed many workers to be rehired. We mentioned earlier this week it isn’t just many of the states in the U.S., much of Europe has also reopened and they are also seeing the benefits of that strategy.
While there have been so many positive developments surrounding the economy and the coronavirus, it is also true that there is still a long way to go on both fronts. In an interview today on CNBC, Dr. Fauci seemed more optimistic that a second wave can be avoided. But that is far from certain and a surge in infections would be a blow to markets. As for the economy, while an unemployment rate of 13.3% was great news with expectations of a rate approaching 20% we still have a long way to go to bring it back down anywhere close to pre-coronavirus levels.
For now the move higher in stocks, interest rates and oil are indicating investors are growing more convinced the current recession is going to be short-lived and the U.S. consumer is on much stronger footing than what was previously thought. As investors turn more bullish we could see money come off the sidelines and drive stocks to all-time highs, something that would have been unthinkable two months ago. But there have been so many twist and turns in 2020 that some caution is still warranted. Have a great weekend.