US equity markets continued their trade higher last week, and on Thursday in particular, received a bump higher due to a significantly stronger-than-expected June Employment Report. Nonfarm payrolls (I) were + 4,800,000 for the month, versus an Econoday consensus of + 3,000,000. May’s results were revised higher as well to + 2,699,000. The unemployment rate dropped to 11.1% in June from May’s 13.3%. In short, the US economy has recovered roughly a third of the jobs lost due to the COVID-19 pandemic. There was more good news in the report as well:
Manufacturing payrolls M/M: + 356,000
Participation Rate M/M: 61.5%
Going back a month, the May Employment Report results were also significantly stronger-than-expected. Nonfarm payrolls registered a gain of + 2,509,000, versus Econoday consensus that was -7,725,000. April’s revised results were a staggering -20,687,000.
Despite the good news, the U.S. economy has a long way to go from here to regain any of the momentum that was present in the economy in Q4 of 2019. The carnage evident in the US economy as a result of the COVID-19 pandemic can most easily be seen in the employment data. The March employment report reflected a revised drop of – 870,00 while April’s employment report reflected a drop of – 20,500,000. Certainly June’s employment gains are welcome, but with much of the economy still largely in shutdown mode in California and New York, significant gains from here on the employment front may be harder to come by in the near term – particularly in light of a second wave of cases taking shape in Florida and Texas.
Another critically important data point released last week that helped fuel investor confidence and equity market gains was the Conference Board’s Consumer Confidence reading for June. Econoday consensus was 90.0. It came in at 98.1. The manufacturing composite index from the Institute For Supply Management, the ISM Mfg. Index, rebounded sharply from May’s 43.1 to 52.6 in June.
This week’s economic calendar is relatively bereft of market-moving data at least as far as the economic calendar is concerned.
With the reversal from our March 23rd lows still very much intact, the Nasdaq Composite continues to lead the broader market higher. The Nasdaq composite traded at record highs last week and closed off less than 1% from the intraday high on Thursday of last week. It is up 14% for the year, and over 50% above the lows of March 23rd. Keep in mind that the intraday lows registered on the date were 6631.42. On Thursday, the Nasdaq Composite closed at 10,207.63 — above its 50 DMA and its 200 DMA and sporting a rising Relative Strength (RS) line. The tech-heavy index appears well-positioned to continue leading the broader market higher.
The S&P 500 closed out last week at 3130.09. That close represents an 8% discount to its 52-week high. I suspect that as we head deeper into Q3 and put additional distance between our COVID-19-induced equity market sell off and our new normal, the S&P 500 should gain ground on the Nasdaq Composite. The S&P 500 passed a significant technical test last week – a test that appears to have been largely unnoticed. On Monday, the S&P 500 reversed course to close above both its 50 DMA and its 200 DMA. It spent the balance of the week adding incremental gains to the trade. As a result, though not as convincingly as the Nasdaq Composite, it closed out the week above its 50 DMA and its 200 DMA and sported positive internals in relation to its A/D line.
By virtually every metric of measure, the Dow Industrials are lagging behind both the Nasdaq and S&P 500. 13% off its 52-week high, it closed on Thursday at 25,828.45. That close is below its 200 DMA and just fractionally above its respective 50 DMA. The relative strength line appears listless. With earnings season all but wrapped up, any directional cue that may trigger a run higher for the Dow resides in either our economic data, or some unexpectedly positive geopolitical news.
The upcoming Presidential elections will play an increasingly significant role in domestic and global equity markets in terms of volume, direction, and tone/volatility. In fact, one could argue that we are beginning to see that already. Make no mistake about it, and regardless of your political leanings, markets are rooting for one candidate, and it is not Joe Biden. In fact, if Biden’s chances continue to improve, watch markets slip. It may be a convenient excuse for those who bought at the bottom of this COVID-19 centric trade, as I suggested to Reuters’ Fred Katayama, to lighten up on their positions.
“Every record has been destroyed or falsified, every book rewritten, every picture has been repainted, every statue and street building has been renamed, every date has been altered. And the process is continuing day by day and minute by minute. History has stopped. Nothing exists except an endless present in which the Party is always right.” ― George Orwell, 1984