May 8, 2020
Stocks continued their move higher this week as more states and companies announced gradual reopenings. Even some of the hardest hit areas, like New York and New Jersey, began outlining plans to get businesses back to work. The optimism around consumers emerging from their homes more than offset this week’s terrible economic figures. Nonfarm payroll losses surpassed post-World War II records as payrolls fell by 20.5 million and the unemployment rate rose to 14.70%. The service sector in particular reported weak figures, contracting for the first time in more than ten years. In overseas news, China, who began reopening its economy in April, posted strong exports while imports struggled amid slow domestic demand. It was a solidly upbeat market this week with the S&P 500 finishing +3.50% higher.
Nonfarm Payrolls Break Post-World War II Records
The Labor Department reported nonfarm payrolls fell by 20.5 million in April while the unemployment rate rose to 14.70% – both post-World War II records. Despite the staggering numbers, the results were better than economists’ estimates of a loss of 21.5 million jobs and an unemployment rate of 16%. Average hourly earnings rose 5% year-over-year, but the rise was purely a statistical anomaly due to job losses being concentrated in lower-paying jobs which skewed the average wage growth number higher. Markets were well warned that the weak print was coming, and instead, investors are more focused on continuing unemployment claims. This figure will give a timelier indication on how rapidly the economy is recovering as workers are called back to work. That figure is still climbing, with last week’s continuous claims increasing by 4.6 million to put the total at 22.6 million. With companies now opening back up, the market will keenly be watching that figure over the next several weeks.
Service Sector Contracts for First Time in a Decade
The services sector got walloped in April as businesses shut their doors. The Institute for Supply Management (ISM) reported the services index fell to 41.8 in April, down from 52.5 in March. Numbers above 50 signal expansion, while numbers below 50 indicate contraction. April’s figure did manage to beat estimates of 40, however. The drop was the biggest contraction for the sector since March 2009. Looking ahead, the ISM noted businesses remained concerned the on-going coronavirus threat would negatively impact the supply chain, operational capacity, human resources and finances. They also remained concerned over how long it would take for business to truly return to normal.
Chinese Exports Rise on Global Medical Supply Demand
China exports rose 3.50% year-over-year in April, beating expectations for a -15.70% decline. Strong global demand for medical products, especially face masks drove exports higher. Imports, on the other hand, fell -14.20% from year ago levels, below estimates of a -11.20% decline. The miss on the import figure should be a cautionary sign to markets, who have rallied on the expectation that consumers will resume spending in droves. At least initially, it appears that consumers are unwilling or unable to resume their normal consumption behavior, which could throw cold water on some of the market’s current enthusiasm.
The debate this week was whether markets are clairvoyant or simply suffering from an extreme case of cognitive dissonance. With the S&P 500 within 13.50% of its all-time high, a lot has been made over how the market can continue to be so detached from the reality on the ground. The unemployment rate and unemployment claims continue to skyrocket. Companies, even when their doors eventually open, are unlikely to see customers return at the speed and volumes those firms enjoyed previously for several months. Earnings for the rest of the year are entirely unpredictable. Markets are forward looking, however, and the rally we’ve seen in recent weeks has been based less on actual estimates, and more on the general expectation that things are getting less bad. With a Fed and Congress that have shown their willingness to have investors’ backs through a combination of stimulus and monetary policy, we’ve gone from a rally once justified by fundamentals by any measure to one now fueled by investor FOMO with a long-term bet on the outcome. The S&P 500 is 30.95% off its March lows. There has only been one instance in history where a rally off a bear market bottom of greater than 30% has resulted in a retrenchment back into a bear market. This is a good omen, but the market’s crystal ball has conjured distant data to get here.
The Week Ahead
We’ll see how bad a hit retailers took from the pandemic in April as the Commerce Department releases retail sales figures. Traders will also be closely tuned into inflation numbers amid rising grocery prices. Lastly, we’ll have Industrial production figures which are poised to be lower as many factories were shuttered in efforts to contain the pandemic.
A Long Distance Mother’s Day
Mother’s Day 2020 will likely look a little bit different this year. Some moms might find themselves with a house full of kids and other families might be separated due to travel restrictions or social distancing. There are a number of ways to celebrate your mom, aunt, grandmother, stepmother, caregiver, or other special motherly figure in your life during this year’s unique circumstances.
Schedule a family call: Zoom just announced yesterday that they are lifting the 40-minute limit on meetings this weekend for free Zoom users, so you can Zoom away for as long as you’d like. Technology such as Zoom and FaceTime can help you virtually catch up, share memories, play virtual games, and more with mom and the whole family. Be sure to plan ahead for family members who may not be familiar with the technology and walk them through the process of joining a call. Experts recommend having an agenda or a topic where everyone gets a turn to speak.
Share favorite photos: Share your favorite photos of your mom and either text them to her or show them to her on a video call. Revisit fond memories over the years and make plans for what new memories you can make when restrictions are lifted.
Take it outside: If you are social distancing but near your mom, set up a backyard picnic which will allow you to enjoy a meal together, or go for a socially distant stroll.
Give her a rain check: As with so many other events normally held this time of year, it’s okay to reschedule Mother’s Day. Feel free to adopt another country’s date and celebrate then. You could choose Costa Rica’s August 15th Mother’s Day or Argentina’s holiday on October 18th.
From the heart: Write a letter letting her know what you appreciate most about your mom. If you live nearby, you can drop off the letter, but if you are separated geographically, you can read the letter to her over the phone. You can also have family members contribute to a gratitude video to send to mom.
Drive-by parade: If you live nearby but can’t go inside, organize a family parade outside your mom’s house. You can decorate outside with chalk drawings on the driveway or sidewalk, or decorate your mom’s front door with a spring wreath as a special treat.