Stocks Fell Friday, But There’s One Reason For Optimism

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Stocks ended Friday lower again, as the lack of clarity on when the Coronavirus will be contained continued to pressure sentiment. But a strong jobs report isn’t a moot point, according to one strategist.

The S&P 500 fell as much as 4% Friday, before moderating to a final loss on the day of 1.71%. The Dow Jones Industrial Average fell 0.98%, with the Nasdaq falling 1.87%. The S&P 500 after a day if huge gains Wednesday, was looking to bounce for a more sustained period of time, which strategists had expected based on technical analysis.

Stocks are back near their level at the perceived bottom of last week’s sell-off, with the S&P 500 14% below its all-time high hit in February.

But risk appetite was nowhere to be found, as money fled into the 10 year treasury bond again, sending the yield to another historical low of just above 0.7%. That’s below the Federal funds rate of between 1% and 1.5%. The negative spread is abnormal in most economic environments, although a St. Louis Federal Reserve chart shows that can happen just around recession time.

Investors didn’t seem encouraged much at the jobs report, which showed that the U.S. posted a net add of 273,000 jobs in February, better than economists estimates of 174,000. There may have been some negative impact on U.S. economic activity in February, but marginally so. Investors know that the real risk lies ahead, making them even more keenly focused on the future and less reliant on backwards looking data for evidence of strength.

But one strategist points out that the jobs report shows that the economy recovery some expect after the virus is contained is in the cards. “While there is bound to be some drag on future jobs data from the  coronavirus-related slowdown, we would anticipate that the effects of this may be transitory,” wrote LPL Financial Senior Market Strategist Ryan Detrick in emailed remarks to reporters. “We believe economic fundamentals continue to suggest the possibility of a second-half-of-the-year economic rebound.”

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