Market Rally Continues, Even as Grim Economic Data Emerges

May 8, 2020

Jobs data from April shows that 20.5 million workers were slashed from payrolls, and unemployment rocketed to 14.7%. Despite the worst jobs report since WWII, the stock market has continued its historic rally. Some economists view this paradoxical split as a sign of the growing divergence between Wall Street and Main Street. However, there are a few reasons that the stock rebound makes sense, even as the broader economy continues to languish.

The most important thing to remember is that jobs data is a lagging indicator. It lets us know how the economy was last month, but tells us little about the current state and even less about the future direction the economy will take. Though the April jobs data is only a few weeks old, things are moving rapidly. States around the country have begun to lift stay at home orders and more are looking to begin reopening soon.

There is also the fact that the majority of the job losses have been in the entertainment and hospitality industries. The savage losses there are perhaps overshadowing the resiliency of other sectors of the economy. Furthermore, the actions of the federal reserve and government have led many investors to believe that the economic recovery will be swift.

What the recent rally shows is that many investors believe that, despite profoundly negative economic data, the worst has passed.

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