A strong week for markets came from a poor week in economic data. But why the rise as the economy fell?
Monday
Markets opened Monday down as they reacted to government concerns over the origins of the coronavirus. Fears were heightened as a potential resurgence of trade tensions were possible. Additionally, over the weekend Warren Buffet announced that Berkshire Hathaway had sold all of their exposure in the airline industry. As is often the case, Monday markets followed suit.
Tuesday
Markets opened strong and faded by the end of the day, but still picked up nearly 1%. Investor sentiment continued to be strong as an economic restart remained in focus. ISM non-manufacturing data impressed as it came in at 41.8 for April. The expected level was 36.8. It should be remembered that just a month ago it was at 52.5. 50 marks the line between contraction and expansion.
Wednesday
Markets were up at the open but faded as the day wore on. ADP unemployment data showed over 20M jobs lost in April, as was expected. The European Union (EU) announced they expect 2020 GDP at -7.7%. These data points and others pushed the markets into the red as it moved to the close.
Thursday
The Nasdaq clawed its way into positive territory for the year. Before you get too happy, the Dow Jones and S&P 500 are still down approximately 16% and 14% respectively. Markets rose even as 3.2M initial jobless claims were filed last week. It may have been that the number of claims, while high, has faded from the peak a while back.
Friday
Unemployment came out at 14.7% and somehow the markets still climbed, heading into the weekend. They were expecting a 16% unemployment rate, which contributed to the growth. Much of that differential may be accounted for in the fact that the participation rate fell to 60.2%, from 62.8%. U6, which measures under employment jumped from 8.7% to 22.8%.
Conclusion
The S&P rose nearly 4% last week as some of the most devastating real economic data in recent history hit. This is a testament to how much of an impact loose monetary policy has had on the market. The risk, much like 2008, is sustaining the stimulus long enough to lead to recovery. Also, balancing the amount of money supply to prevent an over dependence on Federal Reserve activity.
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