Payrolls are falling and stocks are treading water as states slowly start to re-open.
In other words, nothing’s really changed this morning in the battle of the bulls and bears. COVID-19 still hangs heavy over the market while equities fight to stay above water.
According to a report from ADP, private payrolls fell by 20 million in April – the worst monthly drop ever. It didn’t come as a surprise to streetwise investors, but ADP Research Institute co-head Ahu Yildirmaz argues that the statistics are stunning, nonetheless.
“Job losses of this scale are unprecedented,” Yildirmaz said.
“The total number of job losses for the month of April alone was more than double the total jobs lost during the Great Recession.”
Over the past six weeks, over 30 million Americans have filed unemployment claims. Moody’s chief economist Mark Zandi believes that the U.S. may finally be on the other side of the pandemic, though, now that businesses are reopening.
“The worst of it is at hand,” Zandi advised.
“We should see a turn here relatively soon in the job statistics. At least for the next few months, I would anticipate some big, positive numbers.”
That being said, many analysts remain concerned that the U.S. won’t replenish all of those lost jobs any time soon. Peter Boockvar, chief investment officer at Bleakley Advisory Group, said as much in a recent statement about the April payroll plunge.
“This is what you get when government forces business to close and consumers are fearful to go outside,” remarked Boockvar.
“We know however that as things reopen, many of these jobs will get restored but certainly to not anywhere near where they stood in February.”
“Let’s be honest, this is a healing process that is going to take years.,” he warned.
And with the market stalling, investors seem to be coming to that same conclusion. Momentum was sapped from stocks at the end of Tuesday’s trading session, which saw a strong open and weak close.
That negative swing continued into trading this morning.
And if bulls aren’t careful, they could find themselves caught in a “bull trap,” first set by optimism surrounding the state re-openings.
The S&P 500, which has done little but go straight up since bottoming on March 23rd, established a solid trendline (in yellow). The index got close to breaching that trendline several times but never did until last Friday, May 1st.
Now, with the uptrend officially “broken,” the S&P (and other major indexes) occupy dangerous territory.
Unless the market can rise above its April highs (set on April 29th), a descent below the May lows (set on last Monday, May 4th) seems likely.
And if that happens, a bearish shift would soon follow, including a retracement of the market’s post-crash gains.
How far stocks fall would be the next concern as bulls flee their long positions in droves.
Analysts have long argued that the market is overvalued. Moreover, that investors have overestimated the speed of an economic recovery once the U.S. gets past COVID-19.
If stocks start falling, investors could just as easily “oversell” stocks out of fear.
For long-term investors, that’s a frustrating possibility. But for traders, it could represent a major shorting and buying opportunity should equities eventually test their coronavirus lows.
Don’t get me wrong, I (along with everyone else) am hoping for a snap-back recovery in the coming weeks.
But if it doesn’t happen as quickly as expected, there could be hell to pay for the market.
All while the long-term “buy, hold, and hopers” get scorched in a rapid correction.
