Surprisingly Positive Jobs Report Alters Outlook For S&P 500
Summary
- The biggest news of last week was the surprisingly positive jobs report that came out on Friday morning.
- That surprisingly positive outcome has already begun altering the outlook for the S&P 500.
- We saw some initial movement away from expectations of potentially negative interest rates compared to what we observed last week.
For the S&P 500 (Index: SPX), the biggest news of the week ending 5 June 2020 was the surprisingly positive jobs report that came out on Friday morning, which prompted the index to soar 2.6% to close the week at 3,193.93. This level is 956.53 points (42.7%) above where the index bottomed on 23 March 2020 and is 192.22 points (5.7%) below the S&P 500's current record peak that was recorded on 19 February 2020.
What made the May 2020 jobs report so surprising is that it showed a substantial gain in jobs when significant losses had been expected. That surprisingly positive outcome has already begun altering the outlook for the S&P 500, where we saw some initial movement away from expectations of potentially negative interest rates compared to what we observed last week.
Since the CME Group's FedWatch tool has not been adapted to handle the potential for a negative Federal Funds Rate (FFR), the right way to read the probability shown for the lowest "0-25" basis point range is that investors are giving 91% probability the FFR will be at that level or less as of the close of trading on 5 June 2020, lower odds than the were expecting a week ago.
There was also a significant improvement in the outlook for expected future dividends over what we saw last week.
Though it still appears negative, we may be seeing the value of the amplification factor starting to move in a positive direction, which if it continues to become positive, would be a sign the market is leaving the upside down for a more normal right side up relationship in how stock prices work.
What happens next is unlikely to involve a smooth transition from the current regime, as expectations will be affected by the random onset of new information. Speaking of which, here are the market-moving headlines from the week that was, where you might be surprised to find it wasn't just the U.S. jobs market that offered unexpectedly positive news for investors on Friday, 5 June 2020:
Monday, 1 June 2020- Daily signs and portents for the U.S. economy:
- Oil steady; U.S.-China tensions weigh, possible output cuts support
- Trade tensions rise, fall between U.S., China:
- U.S. manufacturing activity crawls off 11-year low
- Mixed picture for recovery emerging in Europe, Asia
- Bigger stimulus developing in China:
- Wall Street closes higher as recovery signs soothe protest, pandemic worries
- Daily signs and portents for the U.S. economy:
- Bigger trouble developing in Japan, "developing" world:
- Bigger stimulus developing in Japan, Taiwan, UK, South Korea:
- Japan's cash balance hits new high as central bank pumps money to combat pandemic
- Taiwan says planned stimulus coupons could boost consumer spending by $3 billion
- UK lends 21 billion pounds to small firms hit by coronavirus
- South Korea announces $29 billion third stimulus budget to fight virus misery
- Recovery signs, bigger stimulus developing in China:
- Wall Street closes up on signs of economic rebound
- Oil moves higher, hovers below $40 as doubts emerge over next step on OPEC cuts
- Bigger trouble developing in Japan, bleak outlook in Eurozone:
- Bigger stimulus developing in U.S.
- Wall Street closes sharply higher on signs of economic rebound
- Daily signs and portents for the U.S. economy:
- Much more massive stimulus developing in the Eurozone:
- Bigger stimulus also finally developing in Germany:
- S&P 500 closes down, snapping four-day rally
- Surprise May U.S. payrolls rise fans hopes for economic recovery
- Other surprising good jobs news elsewhere:
- Oil climbs 5% on U.S. jobless drop, OPEC+ meeting hopes
- Bigger trouble developing in Eurozone, China, Japan:
- ECB's plan for bigger stimulus in Eurozone to face legal challenge:
- Wall Street closes up sharply on surprise U.S. jobs report
Elsewhere, Barry Ritholtz lays out the positives and negatives he found in the past week's markets and economy news.
Since we've been discussing how this week's expectations for the Federal Funds Rate and the S&P 500's dividends have changed from last week, here's our analysis from last week. For other recent and related analysis, please follow the links to our S&P 500 chaos series.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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