The May jobs report and market rallies
Welcome to “Not Pretty, Not Rich,” a newsletter meant to keep you up to date on what’s happening in the markets and economy, and what you can do to take advantage — if anything.
A disclaimer: I’m neither a financial expert or professional. I’m just a guy who writes about money, and this newsletter is a place for me to share my opinion, views, and resources. It’s unaffiliated with my employer, and all views contained within are my own.
It’s Friday, June 12.
About that unemployment report
Last Friday, the May jobs report blew everyone’s socks off. It showed that the U.S. had added 2.5 million jobs in May, and that the unemployment rate ticked down from 14.7% to 13.3%. Some analysts were expecting the unemployment rate to increase to around 20% — so, it’s hard to understate just how surprising this was.
But how can this be? The economy was put into a coma for two months, and somehow things are improving? The surprising numbers had a lot of people wondering what the heck is going on, and even theorizing that the current administration was tinkering with the numbers.
That’s not happening — the experts have been adamant about that. So, what happened? A couple of things:
A lot of workers came back from furloughs, mostly in the hospitality industry.
There was a “misclassification error” that made the unemployment rate look better than it likely is. This has to do with how the BLS surveys people, and millions were evidently classified as not working but employed.
The actual unemployment rate is likely three percentage points higher as a result — somewhere around 16%. The same thing happened with the April jobs report, so the 14.7% rate from last month was probably an undercount, too.
Nothing like this has ever happened before, so the BLS and Census Bureau were just doing the best they can. That’s all we can ask for, right?
So, that’s the gist of what happened. The report was still better than expected, so let’s be happy that we’re getting some good news.
What’s happening with the markets?
The stock market has been on an unprecedented tear over the past few months. The major indices — read that as the market at large — are up almost 40% over the past 50 days. That’s a type of momentum rarely, if ever, seen before.
Until this week, that is, when things took a turn. If this downturn becomes a more sustained slide, I’ll address that next week.
Again, though, the markets being up is generally a good thing. Your 401(k) balance is probably looking better, your boss may be breathing a little bit easier, and people are typically feeling a little better when they’re making money.
But let’s be clear: Considering how far and fast things dropped in February and March, and how fast they’ve recovered, this is pretty much the craziest stock market anyone’s ever seen.
As for what’s driving the markets up? Optimism about a quick economic recovery, for one. The Fed has decided to keep interest rates at zero making it as cheap as ever to borrow money, too, and making other moves to help keep the markets calm. Some big tech stocks, largely unaffected by the pandemic, have also helped lift the market, too.
Another thing: People are piling into the stock market and playing fast and loose with their money. Speculative trading is at or near all-time highs. Many people, who may otherwise be betting on sports, are signing up for Robinhood and getting in on the action.
The results? Stocks like Hertz, the rental car company, recently filed for bankruptcy, but that hasn’t stopped its stock from shooting up almost 1,500% (it’s since dropped again). Which brings us to our action item.
Action item: Chill
It’s a crazy time, with weird unemployment numbers, wild stock market volatility, and what appears to be a surge of coronavirus cases in some states — which could derail the country’s recovery.
Because of that, it may be best to sit tight. Keep your money in savings (and add to it, if you can), and try to resist the urge to start buying random penny stocks. It’s easier and cheaper than ever to make bad or irresponsible decisions with your money, so I implore everyone to just stop and think before making any big moves.
And that includes looting stores.
As always, thanks for reading. See you soon.