The employment report electrified U.S. stock markets last week.
American stock markets responded enthusiastically to the news U.S. unemployment was 13.3 percent in May. If it seems inexplicable double-digit unemployment would thrill investors, there is a reason. The unemployment rate in April was higher at 14.7 percent, and analysts had forecast the rate in May would jump to 19.1 percent. All in all, that makes 13.3 percent look pretty attractive.
There were some caveats.
Are those green shoots?
In economic terms, green shoots are signs of improvement. If you were paying close attention, you might have seen some in economic data released last week.
They weren’t apparent in the Bureau of Labor Statistics report on the United States economy. Gross domestic product (GDP), which is the value of all goods and services produced in our country, shrank by 5 percent during the first quarter of 2020. The contraction reflected lower spending by Americans and American businesses due to COVID-19.
It was a good week for stock markets in the United States, but there was trouble in Asia.
U.S. stock markets rallied last week. The Dow Jones Industrial Average, Standard & Poor’s 500 Index, and Nasdaq Composite all gained more than 3 percent, reported Ben Levisohn of Barron’s.
America is reopening, state by state. That’s welcome news for many businesses, but we’re far from business as usual. Last week’s economic news included unemployment hitting an 80-year high, a record drop in retail sales (-16.4 percent), and an unprecedented decline in industrial production (-11.2 percent).
The stock market is not the economy.
It’s an important point to remember when headlines marvel that U.S. stock markets are moving higher while the U.S. economy is contracting. Stock markets are not mindful of the present moment. They are forward-looking, reflecting expectations about what will happen in the months and years to come, explained Mark Hulbert in a MarketWatch opinion piece.
In the present moment, the pandemic-induced recession is producing some brutal economic statistics.
There are signs COVID-19 may be in retreat. This is good news since some states are beginning to reopen. Last week, the Bureau of Economic Analysis reported on the early economic impact of COVID-19 and shelter-in-place orders, which were implemented to prevent healthcare systems from being overwhelmed by COVID-19 patients. The U.S. economy contracted 4.8 percent during the first quarter of 2020.
We live in interesting times.
There is discussion about whether the saying, “May you live in interesting times,” is a blessing or a curse. At this point in 2020, we all understand why.
Last week, the world watched in consternation as the price of oil, specifically West Texas Intermediate crude oil, dropped into negative territory. The price moved below zero because a purchase date coincided with a lack of storage space. As a result, the owners of the oil had to pay to have it taken off their hands, reported Ben Levisohn of Barron’s.
Oil prices recovered on Wednesday.
Last week’s economic data was about what you might expect in the midst of a virus crisis that has shut down businesses and forced people to stay home. There were some bright spots, though, that boosted optimism in financial markets.
Why is the stock market doing so well when the COVID-19 pandemic has yet to peak?