Stocks Soar as U.S. Economy Shocks the World — 2.5 Million Jobs Added

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Stocks soared Friday as the U.S. economy added jobs in the month of May, against expectations that it would lose millions of jobs. 

All three major U.S. indices rose, with the S&P 500 up 2%. The 10-Year Treasury yield rose to 0.91%, after having been at 0.7% two days ago. Yields rise when prices fall.

The economy added 2.5 million jobs in May, as the economy reopened slowly across all states. Economists were expecting a loss of 8 million jobs. April’s report showed a loss of 20 million jobs. Wall Street had hung its hat on a slowing rate of economic decline for the past month or so, as stocks have rallied, but almost no market participant or analyst expected a gain in employment in May. The unemployment rate fell from a bit over 14% to a bit over 13%. 

"Astonishingly, non-farm payrolls increased by 2.5 million in May, an incredible turnaround from last month, leaving analysts floundering to understand how expectations were quite so wrong, wrote Seemah Shah, Chief Strategist at Principal Global Investors in emailed remarks to clients. “Today’s data suggests that the US economy is more resilient than expected.” 

"At 13.3%, we are still at a higher rate than any that we hit during the Financial Crisis in 2007-2009, but as long as that continues to move lower, it will show that the re-opening of the economy is proceeding smoothly,” said Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance. 

One key question for markets has been the speed at which businesses will rehire workers as the economy slowly reopens. So far, the speed seems to be high, especially as the paycheck protection program has been administered, which provides forgivable loans to small businesses on the condition that they retain employees. Corporate bond issuance, as the Federal Reserve has lowered interest rates dramatically, has soared in May as well. 

Bank stocks soared and are outperforming the rally off of the March 23 low. The Invesco KBW Bank ETF  (KBWB) - Get Invesco KBW Bank ETF Report, up 5% Friday, is up 60% since March 23 while the S&P 500 is up 42% in that span. 

Airline stocks got a huge boost, as they have gotten all week, as investors buy cyclical stocks that have been beaten down by the pandemic. American Airlines  (AAL) - Get American Airlines Group, Inc. Report rose 34%. 

This week, as sentiment has continued its bullish mode, global investors redeemed the heavy amounts of cash they’re stockpiled over the months. 

Investors pulled $16 billion, according to Bank of America Global Research, to put $6.2 billion into equities, $4.9 billion of which flowed into exchange traded funds. The world saw its second highest weekly inflow to high yield bonds, with inflows of $10.2 billion, as credit spreads continue to tighten towards normal levels. Investors moved $3.4 billion out of government bonds, but over the past 5 weeks moved $700 million into TIPS, or treasury inflation-protected securities, which signals investors expect notable inflation soon. 

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