The worst unemployment report since the Great Depression era screamed across computer and television screens Friday morning, announcing that a breathtaking 20.5 million Americans lost their jobs in April and unemployment rate soared to 14.7%.
Wall Street’s response? All three major U.S. indexes finished last week with gains; the S&P 500 has bounced more than 30% from its virus low and is just 13.6% away from its record high. The Nasdaq Composite is more than 35% off its lows and is now up 1.6% for 2020. The Dow Jones Industrial Average has now gained as much as 33% from its March 23rd bottom.
So, What’s Up with Wall Street?
Stocks have rallied since early April, largely due to unprecedented levels of government aid for businesses and optimism that a cure is near.
Despite Friday’s numbers, Washington has been signalling that a large share of lost jobs is expected to be short-lived. “Those jobs will all be back, and they’ll be back very soon,” said Trump in an interview to Fox News over the weekend.
Others have not been so optimistic, stating fears that many of these jobs will not come back, particularly in the leisure and hospitality sectors, and that the U.S. may have an unemployment rate of near 10% well into 2021. Many believe that it will take the U.S. economy roughly two years to return to pre-COVID19 employment levels.
And while no one can predict the future, especially in these unprecedented times, the fact remains. Wall Street literally shrugged off the devastating news about layoffs, mainly because the report was not as bad as many had feared, with economists’ forecasting 22 million jobs lost in April and an unemployment rate of 16%.
Seconds later, the major indexes began to rise. The Dow Jones industrial average gained over 455 points on Friday, advancing 2.6% for the week. The S&P 500 and Nasdaq composite indexes also took off, with the former climbing 1.7% on the day and 3.5% on the week, and its tech-heavy cousin adding 1.5% during the session and 6% during the week.
On another positive note, oil prices settled 5% higher for a second-straight weekly climb amid ongoing hopes that the reopening of economies and output cuts by major oil-producing nations will stem in the glut in crude supplies.
Another reason for last week’s strong market close came as U.S.-China trade tensions eased after both sides reportedly said they expected to meet their obligations under the Phase 1 agreement signed in January.
Technology Stocks Are Helping Push Up the Market
Facebook, Apple, Amazon, Alphabet and Microsoft. Not surprisingly, the same tech giants that have been on a roll for years are now responsible for a large percentage of recent gains. Microsoft shares have climbed 17%, and Amazon has rocketed 28% since the start of the year. These five stocks comprise 21% of the S&P 500 index and have helped preserve the Nasdaq composite in positive territory in 2020, even as the COVID-19 pandemic devastated the economy.
Each stock has its own unique reason for performing well over one of the stock market‘s most challenging times in history. For example, Facebook kept people who are isolated from being alone. But generally speaking, and in the words of a leading Wall Street analyst: “These are the stocks that have empowered the economy and have been the job-creation engines. They are enabling people to work at home. Investors realise the value they provide, and they believe they will continue to be successful.” (washingtonpost.com, May 8, 2020)
That said, these are uncertain times, and it is impossible to know how any stock will be negatively or positively affected in the future.
Stocks that would benefit from reopening the economy also rose on Friday. Airline stocks such as Delta, American and United all gained at least 4.8%. Disney climbed 3.4% while MGM Resorts advanced 4.4%.
As we’ve come to know, Wall Street often behaves counterintuitively, as its reaction to Friday’s U.S. Labor Department report can attest. Also, that Wall Street often recovers long before the wider economy in times of crisis and recession.
Nevertheless, since the start of the coronavirus crash, the market has been characterised by high levels of unpredictability. It is, therefore, impossible to know whether the positive atmosphere will last.