Shocker Employment Report

Scott Kays, CFA, CFP®, Managing Principal

June 5, 2020

The Labor Department just delivered a shocking employment report for the month of May. Economists had estimated that 8 million jobs were lost last month. Instead, 2.5 million jobs were created, and the unemployment rate dropped to 13.3%. This is a clear indication that the jobs market is gaining traction sooner and much faster than expected as the economy begins reopening.

We are certainly not out of the woods yet, and a 13.3% unemployment rate is significantly higher than the peak reached during the great recession. However, compared to an expected 20% figure, 13.3% is a great number. Obviously, much work remains to be done for our economy to return to normal, but this report was a big step in the right direction. It also indicates there is much pent-up demand on the part of consumers who look ready to spend as businesses reopen.

Between the Fed, Congress, and the president, the government has injected trillions of dollars very rapidly into the economy. Their aggressive actions appear to have avoided a worst-case scenario. Where we go from here will still be greatly influenced by whether there is another jump in coronavirus cases. However, we have learned a lot over the last two months, and, should that occur, it is doubtful the government would completely shut down the economy again.

The initial reaction of the stock market to today’s report was extremely positive. As I write this, Dow Jones futures are up almost 3%. The interest rate on the 10-year bond has jumped as well, an expected response to investors’ expectations for increased economic activity.

It seems odd to many that the stock market has performed so well over the last couple of months while the economy has been struggling. Remember, the stock market does not reflect current economic circumstances; rather, the stock market predicts economic circumstances 3-6 months down the road. Investors are looking past the current dire economic situation and predicting a strong recovery over the next few months.

Surprises like this are why we constantly preach to not time the market. When investors sell out of the market in a downturn, the market can rebound so fast that those same investors often miss a lot, if not most or all, of the rebound. Investors who, instead, stuck to the discipline of their investment plan through this tumult have likely fared well.

On June 17, Nick Coppola, our portfolio manager, and I will host a webinar on our economic outlook. If you have not registered already and would like to do so, click here.

Let’s take the win and enjoy the good news. Thank you for your trust and confidence, and have a great weekend!

Scott Kays, CFA, CFP®, is President of Kays Financial Advisory Corporation. He can be reached at (770) 951-9001 or at skays@scottkays.com. 

 

This report and Mr. Kays’ comments are provided as a general market overview and should not be considered investment or tax advice or predictive of any future market performance. Any security mentioned in this report may not be suitable for all investors.  No investment mentioned in this newsletter constitutes a recommendation to buy, sell or hold a particular investment.  Such recommendations can only be made on an individual basis after an assessment of an individual investor’s risk tolerance and personal circumstances.  Past performance of any investment mentioned is not a guarantee of future performance.  Statements regarding the investment concerns and merits of any investment and fair market value computations are strictly the opinion of Kays Financial Advisory Corporation.  Employees of KFAC and KFAC clients may have positions and effect transactions in the securities of the issuers mentioned here in.