Historic Unemployment Numbers
Unemployment continued at a record pace with jobs loss numbers approaching unprecedented levels. So why is the market up if unemployment is getting worse? It’s all about perspective.
Markets are not logical. They are forward-looking emotional indicators about an expectation of future conditions. Markets have rallied because the belief is the jobs numbers are starting to stabilize. With the economy beginning to slowly reopen, the expectation is the carnage is bottoming.
A recent CNBC article highlighted this emerging perception about the stabilization of the employment picture.
Unemployment rolls continued to swell in the U.S. last week, though jobless claims hit their lowest level since the economy went into lockdown made to battle the coronavirus pandemic.
First-time filings for unemployment insurance hit 3.17 million last week, bringing the total to 33.5 million over the past seven weeks, the Labor Department reported Thursday. The total was slightly higher than the 3.05 million expected by economists surveyed by Dow Jones and below the previous week’s 3.846 million, which was revised up by 7,000.
The four-week moving average, which smooths volatility in the numbers, slid to 4,173,500, a decrease of 861,500 from the previous week’s average and a further indicator that the worst of the jobs news may be over.
Numbers not adjusted for seasonality showed a total of 2.85 million claims, a decrease of 646,613, or 18.5%, from the previous week. Some economists think the unadjusted numbers are more relevant for the current unprecedented situation as they are not as affected by seasonal factors.
Source: May 7, 2020, CNBC.com
The perception that employment is beginning to stabilize is a correct one. What is significantly more cloudy is how long it will take for employment to return to pre virus levels. We believe it will likely take years to get to those levels and will be significantly reliant on a virus vaccine.
We do not expect a V-shaped economic recovery. We expect a U-shaped recovery and a gradual return to economic growth. In the meantime, you can expect the market to be pricing in future recovery. That’s exactly what has been happening with this latest market rally.
However, don’t assume we are out of the woods yet. It is entirely possible when economic reality set in, that markets will struggle. It is possible that a retest of previous lows will occur. There’s no way to know for sure. Positioning a portfolio for the long term with assets that can prosper despite the change in our daily life is the best path forward. It’s how we invest portfolios.
Lastly, we continue to deliver food to the frontlines and we are providing 1000 lunches to students via the Alameda County Community Food Bank (https://donate.accfb.org/supporting-families). They continue to be grateful for your continued support. Also, we have many parents working at DWM and their children have been drawing pictures in support of our brave frontline workers.