In February the U.S. Unemployment Rate fell to 3.5%, a rate not seen since May 1969. Following the pandemic outbreak, the rate has risen spectacularly for 3 months – March 4.4%, April 14.7% and May 13.3%.
In that time, more than 40 million Americans have lost employment. For perspective, all the job growth achieved in the 11 years since the Global Financial Crisis of 2008/2009 - and more - have been wiped out, and the number of people without work is higher than during the Great Depression in the 1930s.
As the Unemployment rate climbed, so have the stock markets. From the March lows, DJIA is +45.82%, just 5% lower than at the start of 2020. The S&P 500 +42.98% is essentially unchanged at -1% off, and the Nasdaq Composite at +43.05% is actually up 9.38% year-to-date!
The country is in depression. Unemployment is at record high. 97% of S&P 500 companies have reported, and Q1 earnings are down 66% year-over-year. So why do the stock indices not reflect economic reality? To many investors, stock markets make absolutely no sense a lot of the time, and now we’re right in the middle of one of them.
Here’s the thing – Jobs Matter!
The trillions of dollars pumped into the financial system by the Federal Reserve is all about saving the economy and saving jobs. And right now, Jobs Matter more than anything else.
When employment numbers tanked, the Fed saw fit to act. The stock market reaction? Bad news is good news – BUY! As the numbers got worse – BUY more!
Yesterday, the U.S. Labour Department announced that the May rate at 13.3% is a decline from April’s 14.7%. The market’s reaction? Ah - the economy is better! Good news! Good news is good news – BUY even more! And the indices duly rose – DJIA +3.15%, S&P 500 +2.62% and Nasdaq +2.06%
To the many investors (and clients) who cannot fathom how the markets can be so disconnected with economic reality, shake their heads in disbelief, assert their bearish conviction, expostulate their reasoning, and argue that the market will collapse – I offer the following:
“The market can stay irrational longer than you can stay solvent. Do you want to be right in your opinion or do you want to make money?” and, “IF bad is good news, and good news is even better news – the market is bullish, and the trend is up! And any time you fight the trend, you lose!”
For me, it’s simple – I do not need to be right, I just want to be profitable.