The Week on Wall Street
A positive jobs report sent stocks soaring last Friday, capping a solid week as evidence of a global economic recovery outweighed concerns over civil unrest and tensions with China. The Dow Jones Industrial Average jumped 6.81%, while the Standard & Poor’s 500 advanced 4.91%. The tech-heavy Nasdaq Composite Index lagged, climbing 3.42%. The MSCI EAFE Index, which tracks developed stock markets overseas, gained 5.52%.
Stocks March Higher
Despite multiple headwinds, stocks rode a wave of optimism over economic recovery and were encouraged by signs that a feared spike in COVID-19 had not occurred. Firming oil prices and positive global manufacturing data helped boost stocks during the week. The market continued to be led by industry sectors that were most battered in the March decline, as price advances slowed in growth-oriented stocks, primarily technology names. After a pause on Thursday, stocks surged on Friday when a jobs report surprisingly showed 2.5 million new jobs in May, with the unemployment rate falling to 13.3%. Wall Street expected a jobs decline of over 8 million and an unemployment rate of 19.5%.
A Wall of Worry
While the markets continued to move higher last week, many investors are concerned that the recovery may be hindered by simmering tensions with China and the civil unrest that erupted last week. China has been a longstanding source of market worry, but the civil unrest introduces a new challenge. For now, the market appears to have shrugged off these concerns.
THIS WEEK: KEY ECONOMIC DATA
Wednesday: Consumer Price Index (CPI). Federal Open Market Committee (FOMC) Meeting Announcement. Federal Reserve Chair Press Conference.
Thursday: Jobless Claims.
THIS WEEK: NOTABLE COMPANIES REPORTING EARNINGS
Monday: Coupa Software (COUP).
Tuesday: Chewy (CHWY).
Thursday: Lululemon (LULU).
The markets have staged a powerful rally over the past several weeks thanks to the Fed’s economic intervention and optimism that the economy will come charging back as states reopen and people get back to their “normal” way of life. It has been intriguing to watch this market this year. We went from all-time highs to despair and back over a period of just about 3 months. Or, you can think of it as the market went from expensive to cheap to somewhat expensive again in just 1 quarter. It is amazing what one can do with a measly $3 Trillion bucks.
While we are thankful for the robust rally we have witnessed as of late I would caution there is still work to be done in the economy and the market has priced this recovery for perfection. It would not be surprising at all to see some kind of pullback or for the market to take a pause here and wait for some positive economic data. We are in uncharted waters in unprecedented times. The government has tried the experiment now of “what happens when you shut the economy down to slow a pandemic” and will most likely not do that again even if COVID-19 resurfaces in a meaningful way. The camp that says “it’s different this time” because of the $3 Trillion intervention of the Fed may be right. The extra money in the system has to go somewhere and right now it is happily going into stocks. Yes, there is still work to be done and it is still an election year, but the optimism in America has not been damaged by the coronavirus.