The COVID-19 pandemic has devastated the jobs market in the U.S. and the world, with an April reading of labour conditions in the U.S. showing that a record 20.5 million people are out of work, bringing the unemployment rate to 14.7%, its worst level since the Great Depression by some measures, as businesses closed in order to comply with state and federal measures to slow the spread of the deadly virus.
U.S. stocks still managed to end the day and week higher which seems paradoxical, given the economic toll of job losses on the economy. Many investors are arguing that the stock market has decoupled from the economy but its important to note that the jobs data is backward looking. Many parts of the economy are beginning to reopen and many of the job losses have been concentrated around the leisure and hospitality sectors. Additionally, many of those who lost their job in April said they were furloughed (“a temporary layoff from work”), meaning the unemployment in theory will be temporary.
The possibility of a resumption in the U.S.-China trade war added another layer of uncertainty this week with President Trump commenting that he was having “a very hard time with China” and hasn’t decided how to handle the trade relationship. But Chinese Vice Premier Liu He, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin reportedly spoke Friday morning and pledged to create favourable conditions for a Phase 1 trade deal. Recent data suggest that China has been slow to purchase an agreed-upon quantity of goods from the US as a result of the sharp drop in economic activity stemming from the coronavirus pandemic.
Oil recorded its first back-to-back weekly gain since February, as oil companies are cutting production faster than expected and as signs of increased demand emerged.
With 86% of the constituents of the S&P 500 Index having reported for Q1 2020, blended earnings per share shows that earnings growth is running at -13.8%. The sectors hit hardest include consumer discretionary, financials and industrials while utilities, health care, consumer staples and tech have held up the best.
Stocks recorded solid gains for the week, as investors appeared to reconcile themselves to the depth of the economic downturn and focus instead on the reopening of parts of the economy. The gains brought the technology-heavy Nasdaq Composite Index back into positive territory for the year to date. The Dow Jones (+2.5%), S&P 500 (3.5%) and Nasdaq (+6%) all ending the week strongly in the green. European markets were mixed with the FTSE (+3%) gaining over the week and Euro Stoxx 50 (-0.68%) ending in negative territory. Asian markets were stronger with both the Nikkei (+2.85%) and Shanghai Composite Index (+1.23%) also ending in positive territory.
Market Moves of the Week
The JSE had its best day in two weeks on Friday as investors brushed off dismal jobs data from the US as progress in the US-China trade deal aided risk sentiment.
Business for SA (B4SA) is proposing that companies, in partnership with labour, can take charge of implementing stringent health and safety controls and monitoring in the workplace to ensure the spread of the virus is controlled. This comes as April data start to show the devastating impact of the first full month of the lockdown, during which many sectors of the economy ground to a halt, a growing number of jobs and businesses teetered on the brink and tax collections plummeted. SA Revenue Service commissioner Edward Kieswetter this week said government revenue could fall R285bn short of budget targets this year. April's figures showed year-on-year drops of 55% for corporate taxes, nearly 20% for import tax, 5.2% for PAYE and 4.3% for domestic VAT.
The JSE all share gained 1.32% over the week, with the resource sector performing strongest gaining 2.4%. The rand also firmed over the week closing at R18.35/$ while the financial and SA Inc. sectors of the local economy continue to lag.
Chart of the Week
In the harshest downturn for American workers in history, employers cut an unprecedented 20.5 million jobs in April, and the unemployment rate more than tripled to 14.7%. Joblessness now stands at its worst level since the Great Depression.
Whilst volatility is likely to continue amid current market uncertainty over the coronavirus pandemic, our message to all investors remains the same – stay calm in making decisions that are aligned with your long-term goals, not current market conditions. In any market environment, we strongly believe in the importance of having a portfolio that contains a variety of asset classes, including stocks and bonds, balanced in a way that reflects the investors risk tolerance and investment timeline.
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