Hope or data? What is driving the markets within shot of their all-time highs just months after being down 34%?
Monday
Markets rose for the day as ISM Manufacturing came in at 43.1 in May, up from 41.5 in April. As a reminder, 50 marks the line between contraction and expansion. While improving, it still has a way to go. The market’s move to the north was a bit of a surprise as riots across the nation increase the likelihood of a second wave of coronavirus and subsequently a second economic shutdown.
Tuesday
The value on trade continues to dominate this week as it did last week. This has provided particular strength to financials, industrials, and energy stocks.
Wednesday
Markets rose broadly again on Wednesday. They continued the recent theme of cyclical leadership. ISM services and factory orders improved more than expected, coming in at -13% and 45.4 for April and May respectively.
Thursday
The European Central Bank (ECB) impressed on Thursday, letting markets know they were going to provide support to the EU economy. They introduced a program providing €600B in liquidity. Markets were little changed on the day, as markets awaited May jobs data due out Friday.
Friday
Jobs did not disappoint. The expectation was for unemployment to increase from 14.7% to 19.7% in May. This would have represented job losses of 7.5M losses, not unrealistic given the recent trend in unemployment data. To the contrary the businesses added 3.094M jobs in May, showing a strong jump in people returning to work. The unemployment rate, while deplorable, fell to 13.3%. Markets rallied tremendously on the data.
Conclusion
The hope on wall street is sharply contrasted by the despair on main street as protests grip every state in our nation. Markets seem to be shrugging off the economic impact of these protests as transient in nature. It is not a diminishing of the movement or it’s undeniable importance, but rather a completely separate issue from economic production at this point. Our hearts go out to the family of those injured or killed in recent weeks and we pray for the equality of all Americans!
Markets advanced this week on hopes of a full reopen in the next month or so. Market exuberance at this point lies in hopes as opposed to hard data, as a 13.3% unemployment report is second only April as the worst employment report since the great depression.
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