Market Watch: May 8

Canadian and U.S. indexes climbed again on Tuesday as health care stocks rallied and oil extended its recent recovery, with U.S. crude futures for June gaining 20 per cent. The positive sentiment for oil is being led by increased demand, as countries restart their economies, and falling production. Although U.S. markets finished in the green, stocks declined sharply late in the afternoon after Fed Vice Chair Richard Clarida offered his downbeat take on the likelihood of a V-shaped recovery.

On Wednesday, the Dow and S&P surrendered ground as oil prices declined and U.S. private payrolls fell by a record 20.2 million workers in April, according to the ADP National Employment Report. Although the Dow was down more than 200 points, the TSX was up slightly, while the Nasdaq continued its climb as resilient tech stocks led Wall Street.

U.S. stocks rose Thursday as initial jobless claims continued to decline. For the week ended May 2, those applying for unemployment benefits came in at 3 million, a far cry from the 6 million registered in the last week in March. By Thursday’s close, the Nasdaq was in positive territory for the first time in two months, erasing 2020’s losses.

Finally, turning to Europe, the data’s been especially bleak. A release of purchasing managers indexes Monday showed that coronavirus lockdowns sent manufacturing activity in April to all-time lows for Germany, France, Spain and Italy. Meanwhile retail sales in the eurozone also suffered their largest decline on record in March. In light of recent data, the European Commission is forecasting “a recession of historic proportions,” with the eurozone economy projected to contract more than 7 per cent in 2020.

N.A. Markets Continue to Claw Back Losses

For the four days covered in this report, the Dow added 152 points to close at 23,876, the S&P 500 gained 50 points to settle at 2,881, while the tech-heavy Nasdaq surged 375 points to close at 8,980. In Canada, the TSX climbed 214 points to end at 14,834.

Strategy

Labour market slack here to stay in Canada

The Canadian economy lost ~2 million jobs in April as the unemployment rate lurched to 13.0 per cent. Beyond the shock of the headline figure, the underlying details highlight further strain in the labour market. Indeed, the number of workers who were either not employed or working substantially reduced hours is at 5.5 million, more than one quarter of February’s employment level. The unemployment rate jumps to 17.8 per cent when adjusting for people who recently lost jobs but aren’t looking for work due to COVID-19. Further, roughly 7.6 million Canadians, more than one-third of the pre-crisis labor force, have applied for benefits under the Canada Emergency Response Benefit.

Looking ahead, the worst of the pain may be behind us, data from Indeed Canada shows that while job postings are down significantly year-over-year, they are consolidating at their low levels and the number of people seeking income benefits appears to have peaked. Economic activity should rebound in May as social distancing measures are gradually lifted across the country, but we believe considerable slack in the labour market is here to stay.

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Market Watch: May 8

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