Social unrest has surged around the country, but stocks have been mostly undeterred, as re-opening headlines have accelerated and this morning’s employment report for May added significantly to optimism around the possibility for a “V-shaped” economic recovery. Across March and April, the US economy lost a combined 22.1M jobs and economists were expecting an additional 7.5M loss in payrolls in May with an unemployment rate of almost 20%. This morning’s results, however, epitomized just how unprecedented and unpredictable this crisis has become, as employers actually added 2.5M jobs in May and the unemployment rate fell from April’s 14.7% to 13.3%. Furthermore, the average work week increased to 34.7 hours, the highest level since the data series began in 2006, and likely signals pent up demand for future hiring. The fact that the average economist forecast was off by roughly 10M jobs, is a story in itself, but markets cheered the news and the S&P 500 closed over 2.5% higher Friday and down less than 3% on the year.
Implications for the Future
Going forward, we do have some concerns about what this surprisingly strong jobs report might mean for a widely anticipated fifth round of fiscal stimulus. Senate Republicans had already soured on another round of direct stimulus checks as well as an extension of the $600-per-week in enhanced unemployment benefits. The strong May jobs report likely makes additional bipartisan coronavirus relief bills much less urgent. In addition, while social unrest has largely been shrugged off by markets, it could have meaningful implications for a potential second wave and we wonder if today’s bullish market sentiment is properly reflecting this risk. Re-opening momentum, coupled with massive fiscal and monetary stimulus, remains the focus for investors, but we will be closely watching political rhetoric around a fifth relief bill as well as Chinese-US relations over the weekend.
Ian Browning, CFA | Director, Investment Strategies & Shareholder
Peter E. Simmons, JD | President & CEO