Equity markets continued to rebound last week as hope builds that the U.S. economy will recover from the effects of the pandemic sooner than anticipated. All of this comes as investors are still scratching their heads about how the markets have been behaving.

One thing that has been extremely difficult in this market has been the speed and velocity with which the market corrected and subsequently recovered, as well as the narrowness of the leadership. To put the speed of this pullback into perspective, it took the market just 22 days to fall 20% from the February 19, 2020 peak. With the exception of the 1930’s, this was the fastest correction of 20% we have ever seen. For example, in 2008, it took nine months for the market to correct 20% off the October 2007 high. In 2002, it took 6 months to hit 20% down.

Now let’s look at the subsequent rally. It took the S&P 500 just 16 days to rally 20% off the March 23, 2020 low! If we go back and look at all the major bottoms in the market, the average length of time before rallying 20% is 84 days or nearly three months. The last 20+% rally took place from November 2008 to January 2009.

Another interesting point is, this latest sell-off came after a rather strong move in stocks all through 2019. From 12/24/2018 to 2/18/2020, the S&P 500 was up an incredible 44%.

The main fuel for the markets fire on Friday was a very upbeat jobs report. The Labor Department said the U.S. added 2.5 million jobs in May. Economists had expected a loss of 8.3 million jobs. Friday’s job report appeared to be the clearest indication yet that the U.S. economy may be able to pull out of this downturn faster than anyone anticipated. We will continue to monitor the economic data and how markets respond.

The Markets and Economy

• The coronavirus stimulus package passed in March boosted unemployment benefits by $600 a week to an average of about $978. That means about half of all U.S. workers stand to make more money not returning to work. That increase expires at the end of July, and Senate Republicans are examining replacing it with a bonus for unemployed people who go back to work.
• U.S construction spending fell 2.9% in April with broad declines across all building activity as shutdowns hobbled projects and workers were told to stay home.
• Sales of newly built homes rose a robust 21% in May from a year earlier.
• One bright spot came last week as the Institute for Supply Management said its manufacturing index came in at 43.1 last month after registering 41.5 in April. A reading below 50 signals that U.S. manufacturers are reducing production and the economy is contracting.
• With more states easing lockdown measures enacted to fight the spread of the coronavirus, Americans are gradually hitting the road and causing modest car traffic in cities from Miami to San Francisco. This is a boon for the troubled energy industry suffering from falling crude prices.
• In a surprise twist, the U.S. economy added 2.5 million jobs last month as the official unemployment rate declined to 13.3% after hitting a historic 14.7% in April. While many of the jobs created were for workers called back in the restaurant sector, it provides a ray of hope that the economy has made a crucial turn.
• Retailers inventory has been building during the pandemic shutdown. With stores beginning to open, U.S. shoppers can expect to find huge bargains for everything from shoes to sofas.
• Companies are locking in current low interest rates for future bond sales. The rate locks, called pre-issuance hedges, are set by banks and other financial institutions. It provides businesses the opportunity to issue debt at a later date while protecting against a rise in borrowing rates.
• U.S. cities are struggling with debt payments on publicly financed stadiums. Everything from sporting events to musical entertainment have been canceled for the last few months. When and how they will reopen is still unclear. Municipalities are in negotiations with lenders and bond holders.
• Analysts are worried that today’s economic challenges could plague states and local municipalities for years to come. Local government spending and employment levels didn’t fully recover from the 2007-2009 recession until last fall, a decade after the downturn ended.