Stocks rose considerably Thursday, as an overwhelmingly strong jobs add for June juiced the market, while the prospect of more fiscal stimulus looks promising.
All three major U.S. indices shot up, with the S&P 500 up 1.4%. The index is now just 7% below its all-time-high hit February 19, a gain reflective of upward moves not just in growth tech stocks, but also cyclicals. The 10-Year Treasury yield rose to 0.7%. Yields rise when price fall.
Jobs data showed 4.8 million added in the U.S. for June against estimates of 3 million. The unemployment rate fell to 11.1% in June from 13.3% in May, another guidepost pointing to a fast recovery.
"It’s encouraging to see jobs improve incrementally, but the overall picture is still very much in dire straits—putting tremendous strain on the US economy,” wrote Mike Loewengart, head of investment strategy at E*Trade in emailed remarks to reporters.
Recently strong economic data, pointing to a speedy recovery, has been met with surging coronavirus cases and at least 12 states pausing reopening plans. The threat of more lockdowns looms, a threat investors are looking past for now and that could easily derail the strong economic data. McDonald’s (MCD) - Get Report is pausing reopening plans for stores for 21 days, but the stock rose 0.7%, albeit an underperformer on the day.
“The US government cannot claim victory just yet,” said Seemah Shah, Chief Strategist at Principal Global Investors. "High-frequency data suggests that the labor market strength had started to wane later in the month, perhaps as households and businesses grew increasingly cautious about the rise in infection rates. Indeed, now, with the closings having been reversed or paused across 40% of the US, July’s job report may paint a much weaker story.”
Should stocks have some near-term downside, stimulus will blunt that downside. Not only is the Federal Reserve pumping liquidity through all areas of the bond market, but a fresh round of fiscal stimulus, which can get cash into the hands of small businesses and households directly, looks promising. President Donald Trump said he would like to see another direct payment to households. The House has voted to extend the Paycheck Protection Program for all businesses, which includes forgivable and low interest loans on the condition of retaining employees. This would provide yet another bridge to when any potential lockdowns end, a bridge that seemed to have worked the first time around before reopenings.
As for Thursday’s market action, sector participation was broad, but lead by cyclical sectors like oil, industrials consumer discretionary and banks, many of which were rising more than 3%.
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