The Huge Non-Farm Payroll number released on Friday, June 5th, shocked the market. A massive 2.5 million jobs were created in May 2020. If you were paying attention to the data, you’ll also understand that 1.87 million new jobless claims just last week. In fact, over the month of May 2020, a total of 12.58 million jobless claims were filed. Taken into consideration, the new jobs created in May represent less than 20% of the total job losses over the same span of time.
Our researchers believe the jobs number is representative of a phased reopening of many US states and correlates directly with the extended opportunity for further re-engagement of the US economy over time. The current social unrest taking place throughout the US will likely result in a new spike in COVID-19 cases as well as extended losses for certain businesses.
The demonstrations pose some real concerns for many of these states in regards to scheduled reopening phases and the potential for a spike in COVID-19 cases.
US MAP – STATES REOPENING STATUS
As you can see from the US map, below, the number of states that have started to reopen over the past 30+ days exceeds the number of states still shutdown or partially open. Our researchers believe the migration of the protesters from state to state as well as the continued unrest throughout the US may prompt a new spike in COVID-19 cases – particularly within states that have had the highest transmission rates and are more populated than other states.
US NON-FARM PAYROLL MONTHLY
The May 2020 Non-Farm Payroll number is a welcome positive surge after many months of negative data. Still, as we suggested near the start of this article, the 2.5 million new jobs created did not offset the 12.58 million jobs lost in May 2020. Anyone capable of doing simple accounting can figure out that we need to see more continued new job creation levels to begin to offset the massive layoffs and job losses as a result of the COVID-19 shutdown event.
The US Stock market is hungry for any positive news right now, so the markets look at this data as a very positive sign that a recovery will happen and could be a stupendous opportunity for future growth. Our researchers are still very cautious about this recovery simply because the underlying data is still very negative overall.
US JOBLESS CLAIMS – WEEKLY
As you can see from this Weekly Jobless Claims chart, below, the spike in new jobless claims happened in early April 2020 with 6.86 million new jobless. Since then, the number of new jobless has continued at levels greater than 2 million per week and have slowly been decreasing. We are aware that many states are reducing state and educational employment budgets as a result of the COVID-19 virus event. These budget cuts and layoffs may continue throughout all of 2020 and into 2021 unless a strong recovery event takes place before the end of 2020.
State budgets and the continued risks of a COVID-19 case spike present very real concerns in the minds of our researchers as we have just begun the initial reopening phases for many states. If our presumptions are correct, the social unrest and rioting may prompt a major spike in COVID-19 cases across many states and present a very real extended shutdown event that could last well into late-Summer.
PUT/CALL RATIO – DAILY
This next chart suggests there is “No Fear” in the markets right now as investors pile into the long trades. This Put/Call ratio chart highlights one simple fact that the market can stay irrational for much longer than many traders can handle.
The Fed intrusion into the markets on March 20, 2020, created a bullish foundation in the markets. Traders have piled into this bullish trend over the past 45+ days and this Put/Call chart highlights how extended the rally has gotten recently. Normally, the extremely low levels on the Put/Call chart would suggest a massive market top setup is about to happen – yet, traders may push the markets further into an irrational bullish phase with their exuberance.
Concluding Thoughts:
The reason we stay cautiously related to this bullish price trend in the US stock market is that we believe technical patterns have already set up that suggest a downward price cycle must complete before the bottom in the markets is settled. In Part II of this article, we’ll go over additional charts and data to help you plan for and prepare for the next big move in the markets.
If the markets are able to push much higher after today’s big jobs number, we urge all long/bullish traders to lock in gains with protective stops and to adopt a very cautious outlook going forward. It appears the markets have over-extended this rally and we are still very concerned that a sudden breakdown in price will happen.