Stocks closed out the month with healthy gains. The Dow and S&P 500 both rose more than 4% while the Nasdaq was up nearly 7%. And that comes on top of even bigger rallies in April. Major European indexes and Japan’s Nikkei also enjoyed solid pops in May.
Sure, stocks could head south during the summer. But the May-to-September slump that sometimes happens on Wall Street may not occur this year for several unique reasons. As Mark Hackett, chief of investment research for Nationwide, pointed out in a report at the start of May: “Little of this year has followed historic patterns.”
Finally, given the market’s massive pullback in March, it’s arguable that expectations for even more terrible economic data and weak corporate earnings reports over the next few quarters are already priced into stocks. Investors may already be looking ahead to 2021, and the possibility of a sharp rebound in global economic and profit growth. Consumers, armed with stimulus checks, may boost their spending.
And a second wave of Covid-19 cases also has the potential to derail a rebound, leading to a more drawn out W-shaped double dip recovery. The excitement about stimulus, a vaccine and the reopening of America could fade.
“The road to recovery will be long … with many two steps forward, one step back moments,” Christine Short, vice president of market research with TipRanks, said in a recent report. “It’s true that markets usually bottom well before economic indicators do … but I don’t think anyone is anticipating we’ll be back to ‘normal.'”
The US unemployment rate could peak in May
Coming up: Economists surveyed by Refinitiv expect to learn Friday that the US economy shed nearly 8.3 million jobs last month on top of 20.5 million jobs lost in April. That’s predicted to push the unemployment rate up to 19.7% from 14.7%.
That would be the highest US unemployment rate since 1935, during the Great Depression, according to historical annual estimates from the US government.
But the data indicates the worst may be over. Capital Economics economist Michael Pearce notes that continuing unemployment claims have fallen, an encouraging sign.
“The drop in continuing claims suggests labor market conditions are now beginning to improve again as workers are recalled to their jobs, either because their employer has received funds through the Paycheck Protection Program or because businesses have reopened,” Pearce said in a recent note to clients.
The coming recovery isn’t expected to be felt evenly across all parts of the labor market, however, and economists remain uncertain about exactly how many Americans will be hired back into their old positions.
Monday: US and China manufacturing data
Friday: US jobs report