Wall Street Can’t Muster Up Another Rally for Impressive Jobs Numbers

Another round of striking jobs numbers failed to energize markets, which enjoyed only mild gains on Wednesday. 

Bottled Blonde in Scottsdale, Ariz., is padlocked shut Tuesday, one of the many restaurant bars closed for the next 30 days due to the surge in coronavirus cases. (AP Photo/Ross D. Franklin)

MANHATTAN (CN) — Payroll numbers were surprisingly positive, but Wall Street reacted Wednesday with much less enthusiasm than it displayed after last month’s shocking jobs report.

The June jobs report by ADP shows that private payrolls increased by nearly 2.4 million last month — slightly below what economists had anticipated. In May, however, the number of jobs flipped dramatically from an initial loss of 2.76 million to a gain of more than 3 million, ADP found.

ADP had previously reported that 19 million jobs were lost in April and 302,000 were lost in March.

Possibly the most heartening data point in the report is that nearly three-fourths of the jobs added last month were in the leisure/hospitality, trade and construction sectors, which were among the hardest-hit during the lockdown.

Markets remained largely flat this afternoon, in contrast to the huge rally that followed last month’s surprising May jobs report.

After a few slight ups and downs, the Dow Jones Industrial Average dropped slightly below 0% for the day. The S&P 500 did better, gaining about 0.5% after Pfizer announced one of its drugs successfully created antibodies against Covid-19. The Nasdaq did the best, increasing about 1% for the day to hit a new high of 10,154 points. 

But where Wall Street was indifferent, some in the Trump administration used the numbers to justify canceling the increased unemployment benefits past July. 

“Right now, I think the bulk of the evidence says we are still on track for a very significant upward move, and it’s a V-shaped recovery,” White House economic adviser Larry Kudlow told CNBC on Tuesday. 

Just to be on the safe side, the Senate extended the application period for the Paycheck Protection Program — under which small businesses can apply for forgivable loans up to $10 million — until Aug. 8. The PPP, which still has at least $130 billion in its coffers, was set to expire on Wednesday.

Many lawmakers on both sides of the aisle now want to use the extra money for targeted grants. “What we really need to pass very soon is targeted help for those who need a second round of aid,” Republican Senator Marco Rubio tweeted shortly after the extension passed the Senate on Tuesday evening.

Regardless of whether the recovery settles into a V-shape or a U-shape, the third and fourth quarters of this year are likely to smooth out, some experts say. 

Normally there is just a single 1% day of trading — in which the S&P 500 moves either 1% higher or 1% lower — per week, according to Jessica Rabe or DataTrek Research. During the first quarter of 2020, there were 30 days of 1%, and 1% days happened 38 times in the second quarter, Rabe noted.

Rabe’s research shows, however, that in previous quarters of choppy trading — including the market crash of 1987 and during the Great Recession —trading generally pointed upward in the S&P 500. 

“Equity volatility and returns are typically inversely correlated, so if this quarter is the high one for percent-plus days, history says volatility should abate and the S&P should have a positive return over the next two quarters,” she wrote.

But Rabe warned that volatility will likely remain high throughout the year, “so earning a positive return over the back half of this year will note resemble the smooth sailing one typically sees during mid-cycle bull markets.”

The Federal Reserve, which has been a guiding light for investors through the Covid-19 crisis, is prepared to “maintain highly accommodative financial conditions for many years to quicken meaningfully the recovery from the current severe downturn,” according to minutes from the Federal Open Markets Committee released on Wednesday.

Going forward, however, the Fed may switch its focus from unemployment to inflation. The minutes from the FOMC’s June 9-10 meeting revealed that several participants wanted to tie forward guidance to inflation, while “a couple of participants” want guidance tied to the unemployment rate. Others prefer calendar-based guidance.

The central bank once again warned about the possibility of an uptick of the virus sabotaging any recovery, noting a second wave of Covid-19 and renewed limitations on social interactions could lead to “a decrease in real GDP, a jump in the unemployment rate, and renewed downward pressure on inflation next year.”

Earlier this week, the administration’s leading infectious disease expert, Dr. Anthony Fauci, told lawmakers the current outbreak is on trend to surpass 100,000 new infections per day in the United States if nothing is done. Currently, more than 40,000 new cases of Covid-19 have been reported daily in the past week.

The recent spike has led states like CaliforniaNew Jersey and New York to temporarily ban or delay indoor dining and bars. 

To date, more than 10.5 million people have been infected by Covid-19 worldwide, while about 512,000 have died, according to data compiled by Johns Hopkins University. In the United States, 2.6 million people have contracted Covid-19, while more than 127,000 have died.

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