A woman walks through an almost-deserted Times Square in the early morning hours of April 23, 2020, in New York City.
Agence France-Presse/Getty ImagesStocks are rallying in response to the latest unexpected news on U.S. employment—2.5 million jobs came back in May—building on gains fueled by hope for additional economic stimulus.
The Dow Jones Industrial Average surged 966 points, or 3.7%. The S&P 500 index added 2.9%, while the Nasdaq Composite increased 2.1%. The small-cap Russell 2000 jumped 4.8%.
Economist estimates compiled by FactSet had expected the government payroll figures to show a loss of 8 million jobs—a difference of 10 million jobs from the actual result.
“In the greatest miss in forecasting history, the May jobs report demonstrated that America is going back to work,” CIBC Private Wealth Management’s chief investment officer Dave Donabedian wrote in an email Friday morning. “It is also impressive that gains were broad-based: services, manufacturing and construction all rose sharply. This report needs to be put in context – the economy is still in a deep recession. However, it is also clear that the recovery has begun, and that it is ahead of schedule.”
The unemployment rate fell to 13.3% in May from 14.7% in April. Forecasts had been for it to rise to 19% last month. More Americans left the workforce than expected, contributing to the gap between forecasts and the result.
Another negative was that average hourly earnings slipped 1% in May, versus an expectation for a 1% gain. But that could have to do with more low-wage jobs returning faster than forecast. Hours worked also rebounded slower than the headline jobs number, as many employees were rehired on a part-time basis who had previously been full time.
And a full recovery remains a long way off. The U.S. economy still had almost 20 million fewer jobs in May than in February, before the coronavirus impact began to be felt.
Stimulus hopes, a key driver for the rally that has sent markets around the world soaring from March lows, were in the air again on Friday. The administration of President Donald Trump may be ready to spend up to $1 trillion on the next pandemic stimulus round, Bloomberg News reported, citing people it didn’t identify.
While that stimulus bill isn’t expected to come immediately, it was enough to inspire buying. Another boost came on Thursday, when the European Central Bank surprised investors with a bigger-than-expected boost to the size of its pandemic emergency purchase program.
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The Stoxx Europe 600 climbed 2.3% on Friday. Germany’s DAX rose 3.2%, France’s CAC 40 added 3.4%, and the U.K.’s FTSE 100 gained 2.2%.
In Asia, Hong Kong’s Hang Seng Index rallied 1.7%, ending the week with a 7.9% gain. China’s Shanghai Composite ticked up 0.4%, Japan’s Nikkei 225 added 0.7%, and South Korea’s Kospi Composite rose 1.4% to close the week up 7.5%.
Oil rose too. The price of West Texas Intermediate crude was up 4.7%, to $39.15 a barrel. Brent, the international benchmark, gained 5.2%, to $42.06.
Haven assets fell as investors piled into stocks. The price of gold fell 2.6%, to $1,682.10 an ounce—its lowest levels since early April. And the yield on the 10-year U.S. Treasury note jumped 10 basis points, or hundredths of a percentage point, to 0.924%, as the price of the securities dropped. It’s the fifth straight day of yield gains for the 10 year, and the highest yield since March 20.
The most economically sensitive stocks surged the most, but the rally was broad. Cyclical energy, financials, and industrials sectors led all 11 sectors of the S&P 500 higher. About 470 of the index’s constituents were in the green on Friday.
Airline shares continue to bounce on the economic optimism and after American Airlines (ticker: AAL) announced plans to increase capacity. American stock gained another 20.2% after rising 41% Thursday. United Airlines Holdings (UAL) shares were up 16.2% after rising 16% on Thursday and 13% on Wednesday.
Cruise line stocks also soared. Norwegian Cruise Line Holdings (NCLH) added 21.9%, Carnival (CCL) jumped 23.4%, and Royal Caribbean Cruises (RCL) surged 18.9%. As with the airlines, the stocks have rallied strongly in recent weeks but remain sharply down from their pre-coronavirus levels.
Energy-linked shares also continued their recovery trade. Occidental Petroleum (OXY) stock, for instance, was up 26.3%, while Halliburton (HAL) shares rose 13.1%.
A few notable stocks were down on Friday, bucking the rally.
Gap (GPS) shares ticked down 0.1% after the retailer missed forecasts with first-quarter earnings amid coronavirus store closures. Gap stock is down about 31% year to date. Retailers of discretionary goods have been hammered by the Covid-19 pandemic, so a lot of bad news is already reflected in Gap’s share price.
GameStop (GME) doesn’t report earnings until next week, but the company released preliminary results Thursday. Sales for its quarter just ended fell by about one third year over year, a little worse than expected. The stock, already down about 93% from all time highs, was off another 5.1% on Friday.
RH (RH), the parent company of Restoration Hardware, fared a little better in its recently ended quarter—sales and earnings beat expectations. But the stock ticked down 2.7% on Friday. But shares were up about 16% year to date, as of Thursday’s closing price, and were up about 240% from their March lows, marking a spectacular comeback.
Slack Technologies (WORK) also had a high bar to justify when it reported better-than-expected sales and earnings for the latest quarter. Good wasn’t good enough, however: shares fell 15.9% on Friday after an almost 70% year to date as of Thursday’s closing price.
Write to Barbara Kollmeyer at bkollmeyer@marketwatch.com and Nicholas Jasinski at nicholas.jasinski@barrons.com
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