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Market Watch: May 1

May 1, 2020 | 2:20 PM

Big Picture

N.A. Markets Regain Ground, Despite Weak Economic Data

It was an auspicious start to the week as global stocks rose Monday over news that more countries, and some states in the U.S., were beginning to reopen their economies. By Monday’s close, the Dow jumped nearly 360 points, while the TSX added 222. Meanwhile, oil prices weakened sharply Monday on continued concern about oversupply, falling near their lowest level since 1999.

Global stocks were mixed, however, on Tuesday in a volatile session that saw U.S. markets reach new multi-week highs before fading later in the day, as serious questions remain about declining corporate profits, stretched equity valuations and a deteriorating U.S. economy. Weighing on markets was news that the U.S. consumer confidence index in April tumbled to a reading of 87 from 119 in March. That’s the lowest reading in about six years and a clear indication that consumer spending will face considerable headwinds for some time to come. In commodities, U.S. crude dropped 3.4 per cent to $12 a barrel. By Tuesday’s close, U.S. markets were down slightly, while the TSX climbed 156 points.

Numbers released by the U.S. Commerce Department Wednesday showed that the U.S. economy contracted 4.8 per cent in Q1 2020, the biggest drop in quarterly GDP since Q4 2008. According to many economists, the decline marks the beginning of a near-certain recession, with Q2 numbers expected to paint an even bleaker picture. Meanwhile, the eurozone economy contracted at the fastest pace on record, as Q1 GDP shrank over 14 per cent. Despite the downbeat data, N.A. markets regained considerable ground Wednesday on reported progress on a coronavirus treatment and optimism for a post-pandemic resurgence. The TSX hit a seven-week high on Wednesday, boosted by a 22 per cent jump in U.S. crude oil futures, while the loonie saw its biggest increase in three weeks against the greenback. By the close, the TSX added 430 points, while the Dow surged more than 530. Since the market crash in February and March, the TSX and S&P 500 had both clawed back roughly 60 per cent of the losses by Wednesday’s close.

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While markets looked poised for another strong showing on Thursday, weak reports on U.S. unemployment and consumer spending tempered investors’ appetite for risk. Consumer spending fell 7.5 per cent in March, the steepest monthly recorded decline in six decades. Meanwhile, weekly jobless claims in the U.S. hit 3.8 million, bringing the total number of newly unemployed to roughly 30 million. Despite Thursday’s modest losses, the Dow and S&P during April gained 11 per cent and 13 per cent respectively.

N.A. Markets Continue Climbing Back

For the four days covered in this report, the Dow added 571 points to close at 24,346, the S&P 500 gained 75 points to settle at 2,912, while the tech-heavy Nasdaq jumped 256 points to close at 8,890. In Canada, the TSX regained 361 points to end at 14,781.

Initial jobless claims continue to trend lower as non-farm payroll data next week could show unemployment spiking above 15 per cent, up from 7.8 per cent

Fillings for unemployment benefits continue to roll back from their record-high levels in the U.S., albeit at a slowing pace. Jobless claims fell to 3.8 million in the week ended April 25th, down from 4.4 million previously, as they marked their fourth consecutive weekly decline from 6.9 million at the end of March. Still, claims remain extraordinarily high with roughly 30 million initial submissions in the last six weeks. Several states are pushing ahead with plans to re-open their respective economies, which should stabilize filling rates in the very short-term and provide a template for what to expect at the national level, assuming easing of mobility restrictions are successful.

Continuing claims, which are reported with a one-week lag, surged to almost 18 million from ~16 million previously, while the insured unemployment rate, which represents the share of the labor force claiming jobless benefits, rose to 12.4 per cent from 10.9 per cent a week ago. Michigan has been the hardest hit state thus far with its insured unemployment rate rising to nearly 22 per cent for the week ending April 11th, with nine other states reporting insured unemployment rates above 15 per cent. Consensus expectations point to the April unemployment rate spiking to above 15 per cent, up from 7.8 per cent, when the data is released next Friday. The surge in joblessness could persist throughout 2Q if businesses are slow to rehire.

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