Memories bring back, yo
There's always a need for more data to confirm or deny economic trends. In the world of Wall Street; one good number is luck, two is a fluke, but three is a trend. The second, or fluke part, could be said for today's blowout non-farm payroll number - payrolls rose by 4.8 million jobs (2.9 million expected) and the unemployment rate fell to a crisis low of 11.1% (12.4% expected). This follows last month's blowout numbers. What makes this one-two punch combo so powerful is that after such a big beat, like last month, analysts typically raise their expectations. So, after the May blowout, analysts still underestimated the figures that came out today.
Moving forward
The focus is already on the next non-farm payroll report for July, to be announced on August 7th, 2020. We'll all be looking to see how the Covid-19 surge, starting at the end of June, will impact that announcement. With states slowing, halting, or reversing their reopening, we'll need to see if the non-farm payroll number could keep impressing, just one more time, to make it a trend. Will the Covid-19 surge slow things down? It makes sense to think it will, which is why, at the time of this writing, the major averages are up solidly but off their highs of the day.
From, the outset, my position has been that this is a health crisis that has created an economic crisis. Take care of the health crisis, the economic crisis will end. New Covid-19 cases rose by over 50,000 today and expectations are that they'll soon exceed 100,000 per day. But with talk of more stimulus from Congress and the Federal Reserve, investors aren't willing to take much risk off the table, which is why the Covid surge has't taken a heavy toll on the major stock averages. Also keeping a lid on things today is that Moderna's phase 3 coronavirus vaccine trial has been delayed, which brings back to the fore how difficult it is to develop vaccines. That's what's going on now.
A deeper understanding of the economy could be gleaned from sectors of the stock market. When we see the stock market rise on the back of technology, consumer packaged goods, and utilities stocks, it's not a great sign for the real economy. Work-from-home and stay-at-home stocks do well when the economy is expected to remain in recession. What we need to see leading the way higher are financial, industrial, and energy stocks; which would mean the economy is getting some lift - and Covid-19 is fading away as an impediment to the economy. So, is it good that the NASDAQ Composite keeps hitting new highs? Yes, but not for the reasons we want; it's filled with the largest tech companies who are also the biggest beneficiaries of the Covid environment. Sector ETF's that I follow for clues of economic recovery are XLF (Financials), XLI (industrials) and XLE (Energy), if you'd like to follow along at home.
Ending
I'd like to wish you a happy and healthy Independence Day. May it be filled with reflection, inspiration, and the sense that even though change is very difficult, you've adapted to the last few months as a stronger, kinder human.
I found the video below to be so touching. I hope it brings you as much joy as it did for me. It's a kids' choir rendition of one of my favorite songs, Memories by Maroon 5. Please share this with a friend.
Thanks and have a great weekend,
Mitch
