Looking ahead. The stock market continues to rally in the face of grim economic news. On Friday, data showed the U.S. unemployment rate soared to 14.7% in April as employers cut 20.5 million jobs during the month. Recent surveys of manufacturing, services, and business investment activity all showed tumbling figures.
But U.S. stock indexes all closed the week with solid gains. As always, investors are looking to the future, and the economic data reflects conditions as they were last week, last month, or last quarter.
Those focused on the recovery believe that the worst is already behind us and are moving to price in better data ahead. And trillions of dollars of monetary and fiscal policy stimulus have provided powerful tailwinds to both that recovery and risk assets, such as stocks.
Regardless of the jobs data, the Dow Jones Industrial Average closed up 455 points, or 1.9%, on Friday. The S&P 500 rose 1.7% and the Nasdaq Composite gained 1.6%. The small-cap Russell 2000 index, more sensitive to upturns and plunges in the economy, added 3.5%.
Several companies this week have started to talk up their reopening plans, and others have said they are already seeing improving conditions in their businesses. Uber Technologies (ticker: UBER) said on Thursday evening that its ride-hailing bookings were well off their lowest levels of the crisis. Shares jumped 5.7% on Friday.
Walt Disney (DIS) sold out tickets for its soon-to-be reopened Shanghai Disneyland in minutes, suggesting that consumers in the world’s second-largest economy are eager to get back to enjoying life, and are willing to spend money. The theme park will initially be limited to one-third capacity to allow for physical distancing.
Disney also plans to reopen a shopping and entertainment complex adjacent to Disney World in Florida before the end of May. The stock closed up 3.4% on Friday.
Apple (AAPL) said Friday that it would reopen stores in four U.S. states beginning next week. Its Chinese retail locations have been open for several weeks. Shares climbed 2.4%.
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Boeing (BA) shares rose 3.7% after the company announced that the factory where it makes the 737 MAX jet will restart production later this month. Even Booking Holdings (BKNG) said it was seeing signs of stabilizing reservations, though it warned that the road to recovery for the travel industry was a long one. Amtrak plans to reinstate some service—including Acela trains—starting June 1.
The tangible signs of progress may be pulling some previously skeptical investors into the market.
“Although our short-term ‘trading’ model suggests the S&P 500 remains a bit ahead of itself, from a long term asset allocation and business cycle perspective our view remains to buy on pullbacks,” wrote Michael Darda, chief economist and market strategist at MKM Partners, on Friday. “Recent client conversations suggest a high level of skepticism over both current market levels and recovery prospects (which is probably bullish from a contrarian perspective).”
As throughout the coronavirus crisis, the level of uncertainty remains high and the potential pitfalls are numerous. Chief among them is the risk of a second wave of coronavirus cases emerging just as stay-at-home orders are lifted, necessitating another lockdown. Consumers may be slow to return to their pre-crisis spending habits.
And the recovery may simply take much longer than optimists expect. Restarting a business and rehiring employees requires much more time and effort than shutting down on a governor’s order.
There are plenty of factors that could slam stocks after the market’s recent rapid gains, but weeks-old economic indicators won’t be the ones to slow the rally.
Write to Nicholas Jasinski at nicholas.jasinski@barrons.com
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May 09, 2020 at 04:09AM
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Why Stocks Are Taking Off Despite 20 Million Jobs Lost in April - Barron's
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