The Dow Jones enjoyed one of its more superficially-baffling rallies today, as the worst jobs report since the 1940s did little to dent enthusiasm on Wall Street.
With 14.7% of Americans unemployed, bulls are clinging to the fact that the figures were marginally better than forecast. And investors are breathing a big sigh of relief as the U.S. and China play nice over the trade war again.
All three of the major U.S. stock market indices rallied on Friday to close the week with a bang.
Crude oil rose a modest 4% on Friday, lifting front-month WTI futures to $24.50.
The stock market has been bracing for a horrendous U.S. jobs report for some time, but it once again appeared that the labor force destruction is fully priced in.
With forecasts of 16% unemployment, the 14.7% reading was apparently good news to someone, as the Dow soared at the open of trade.
The massive bounce in average hourly earnings figure (due to mostly lower-income workers losing employment) was definitely nothing for Main Street to get excited about, even as the stock market movements suggest the future is brighter in the U.S. than it appears.
Economist James Knightley at ING is not feeling quite so confident about the future.
Writing today, he rubbished the chances of a V-shaped recovery in the U.S. economy and highlighted a rather dire statistic about the true extent of the job destruction:
Today’s jobs report is horrible with the unemployment rate up at 14.7% and 20.5 million jobs lost in April, but the data will continue to deteriorate. Social distancing, consumer angst, travel restrictions, and the legacy of up to 40 million jobs lost mean there is zero prospect of a V-shaped recovery. Another terrible statistic is that just 51.3% of people of working age now have a job – it will be below 50% next month.
Beyond the jobs report, the other thing sparking volatility in the Dow Jones was news that China and the U.S. are being much friendlier towards one another. Though Trump has been threatening more tariffs, Chinese trade officials are making all the right noises about adhering to the phase one agreement.
This helped fuel risk sentiment, but to say that economists are skeptical about China’s commitment to the trade deal is putting it lightly.
Ultimately, a strong stock market is a plus for Donald Trump, and it would seem that this is why he’s taking a moderate tone on China after a period of aggression.
After all, it’s a tactic he has often employed during the trade war.
Unsurprisingly given the warmer tone between the United States and China, global risk bellwether Caterpillar was one of the top performers, rallying more than 3.8%. Fellow China-linked stock Dow Inc. mirrored CAT’s rise.
The recent recovery in crude oil has helped nervous investors keep the faith with supermajors Exxon Mobil and Chevron, and both stocks rallied more than 2.5% today.
But Big Oil needs crude to move far above $24 per barrel over the long term. Investors will want to see prices much higher by next year to ensure Exxon and Chevron can maintain healthy balance sheets moving forward.