- Dow Jones Industrial Average (DJIA) futures point to a second straight day of solid gains for the U.S. stock market.
- The rally came despite “the worst macroeconomic data report in U.S. history.”
- Here’s why Wall Street shrugged off a historic monthly spike in job losses.
Minutes ago, stock market bulls watched the worst U.S. jobs data since the Great Depression flash across their screens, and they didn’t so much as blink. In fact, Dow Jones Industrial Average (DJIA) futures show that the index is coiled to spring toward its second straight triple-digit gain.
According to the Labor Department, U.S. unemployment crashed by 20.5 million jobs in April, causing the unemployment rate to swell to 14.7%.
It only took Credit Suisse Chief Economist James Sweeney one sentence to explicate what this says about the U.S. economy:
This might be the worst macroeconomic data report in U.S. history.
And yet the stock market reacted with nothing more than a half-hearted shrug.
That’s not going to do much for the reputation of the “most-hated Dow Jones rally ever,” but with all due respect to the perma-bears, it’s entirely rational behavior.
We’ll dig into the reasons why in a moment, but first, here’s how the stock market is moving ahead of the opening bell.
Dow Futures Bounce as U.S. Labor Market Incurs Record Job Losses
Dow Jones Industrial Average futures had pointed to strong gains throughout the overnight session, and they held firm in the aftermath of the ugly jobs report.
As of 8:38 am ET, Dow futures had gained 186 points or 0.78%, implying opening bell gains of more than 200 points.
S&P 500 and Nasdaq futures traded 0.8% and 0.71% higher, respectively.
Treasury bond yields held relatively flat despite the risk-on move in stocks. The yield on the 10-year benchmark ticked 0.027 points higher to 0.658%.
Gold also traded sideways after the jobs report release. Bitcoin – which poked past $10,000 on Thursday thanks to a surprise boost from hedge funder Paul Tudor Jones – edged about 1% lower to $9,870.
Why the Dow Shrugged Off the ‘Worst Macroeconomic Data Report in U.S. History’
So why is the Dow moving higher in the face of the biggest-ever monthly unemployment spike? Because the stock market is a discounting mechanism.
This means that it constantly evaluates – or discounts – all available information at its disposal about past, present, and potential future events.
As portfolio manager David Bahnsen wrote on Thursday evening ahead of the jobs report release:
It will be awful, and tragic, and will leave a percentage unemployment number higher than anything we have seen perhaps since the Depression. The jobs number tomorrow will not tell us anything we do not know right now: (a) Way, way too many people are currently out of work (the jobs data will reinforce that); (b) We do not know how quickly the economy will re-open and re-hiring can commence (the jobs data tomorrow will not tell us that, either).
In other words, there are two crucial reasons Wall Street shrugged off this jobs report.
First, it didn’t surprise anyone. Investors knew this was coming. They knew it was coming yesterday, when jobless claims exceeded estimates (again) and yet the Dow rose 211.25 points anyway.
They knew it was coming a month ago, when the March report brought an abrupt end to 113 straight months of labor market growth. And they knew it was coming weeks earlier, when the U.S. economy first started going on lockdown.
Second, today’s jobs report didn’t give investors any new information. The stock market has already priced in employment losses.
What it’s struggling to discount now is when the economy will reopen, when unemployed workers will reenter the job force, and what the labor market will look like when the dust settles.
Job Listing Data Exposes Labor Market Headwinds
That’s why, as ugly as the jobs report looks, this chart might be even more frightening. It shows that new postings fell approximately 50% between February 1 and May 1 on job listing search engine Indeed.
The employment report is a lagging indicator of what’s happening in the labor market. This is a leading one.
This article was edited by Sam Bourgi.