3 Gloomy Metrics Threatening an Abrupt End to the Stock Market Rally

Three key data points in growth, jobs, and spending, indicate the ongoing stock market rally will be short-lived.
Stock market, stock market rally
The stock market continues to rally this week with a stronger, more-robust recovery - but key threats remain. | Source: AP Photo/Richard Drew
  • Economic growth, jobs, and spending are slowing down, posing a threat to the U.S. stock market.
  • Economists warn a -4% economic growth rate in 2020, down from -0.2% in March.
  • Fear of missing out (FOMO) is leading the ongoing rally, but gloomy data shows it may be short-lived.

Three key data points in growth, jobs, and spending indicate the ongoing stock market rally will be short-lived. Strategists are revising the expected growth of the U.S. economy and jobs market once again, unnerving investors.

The Dow Jones Industrial Average (DJIA) surged by 2.21% on May 27 and has recovered to early March levels. Japan’s Nikkei 225 increased by 2.32% in the same period, affected by the performance of the U.S. stock market and its $2 trillion stimulus package.

U.S. stock market
The U.S. stock market recovered to early March levels | Source: Yahoo Finance

#1: Revised Economic Growth

According to Bloomberg Economics, the global economy is expected to contract by -4% in 2020.

In March, the researchers predicted the economy to shrink by -0.2% and in January, the forecast was hovering at a 3.3% gain.

The gloomy economic forecast of economists show a recovery in the near-term is highly unlikely. It questions the legitimacy and sustainability of the ongoing stock market rally.

Supply chains are disrupted, geopolitical risks are mounting, the pandemic still remains a real threat, and companies are struggling to meet their guidance.

#2: Rising Unemployment Claims

The U.S. stock market has been increasing despite a significant spike in unemployment claims.

Economists predict that the U.S. is on track to reach 41 million jobless claims within the next 10 weeks.

U.S. President Donald Trump is pushing to reopen the economy by the month’s end, and that led to optimism towards a lower unemployment rate in the near-term.

But, researchers at Bank of America (BofA) emphasized that the process to reintroduce millions of people back into the workforce will be gradual.

In the intermediate-term, the researchers noted that the jobs market in both the U.S. and Europe will continue to struggle.

BofA said:

This argues for persistent pain in labor markets.’

bloomberg labor market
The labour market in Europe. | Source: Bloomberg

The U.S. stock market somewhat benefited from the rising unemployment rate. When major corporations let go thousands of employees, they see their share prices spike and reward executives with bonuses.

Over time, investors remain concerned that the current trend of the stock market will lead to a declining inflow of capital into stocks.

Fewer people are spending and are seeing lower incomes, which may affect 401(k) contributions.

stock market great depression
Source: Thomas Kaine

#3: Declining Consumer Spending

The Consumer Comfort Index fell from 65 to nearly 35 year-over-year from April 2019 to April 2020.

The data suggests the general population in the U.S. are simply not willing to spend their money on leisure, travel, and casual purchases.

consumer spending
Source: Guido Fawkes

The stock market is seemingly dismissing the worrying consumer trend shift in the U.S. But, in the medium-term, it could affect a wide range of key industries including finance (credit card companies), retail, travel, and real estate.

It goes in line with studies that found households are saving at a rate unseen since the 1980s. Households are becoming more frugal, reducing costs and tightening their budget.

The U.S. stock market is rallying off of fear of missing out (FOMO) among retail investors. Yet, the three concerning data points that forecast a dire economic downtrend pose a serious threat to the momentum of stocks.

Disclaimer:  The opinions expressed in this article reflect the author’s opinion and should not be considered investment advice from CCN.com. The author holds no investment position in the assets mentioned above.

Samburaj Das edited this article for CCN.com. If you see a breach of our Code of Ethics or find a factual, spelling, or grammar error, please contact us.

Subscribe
Notify of
0 Comments
Inline Feedbacks
View all comments

* All comments must be approved by staff before appearing on CCN.com. We do not allow bad language, hate speech, nor verbal attacks on staff or other commentators. Some comments may be edited for clarification or if they are in breach of our comment policy. If you wish to delete your comment or data, please contact us.

Joseph Young

Joseph Young

Financial analyst based in Seoul, South Korea. Contributing regularly to CCN and Forbes. I have covered the stock market and bitcoin since 2013. Joseph Young is a Trusted Journalist. Visit his MuckRack profile here. Reach him on Twitter or LinkedIn.

More from this author: