Higher and higher.
That’s where the market’s going these days now that investors believe the economy has “bottomed.”
And according to a newly released report from two major ratings agencies, the labor market may have done so as well all the way back in April.
Data from ADP and Moody’s Analytics showed that in May, U.S. private payroll losses totaled 2.76 million. That’s well below the expected figure of 8.75 million from leading economists.
Ahu Yildirmaz, co-head of the ADP Research Institute, views the disparity as a sign that conditions may be improving faster than initially expected.
“The impact of the COVID-19 crisis continues to weigh on businesses of all sizes,” Yildirmaz said.
“While the labor market is still reeling from the effects of the pandemic, job loss likely peaked in April, as many states have begun a phased reopening of businesses.”
As a result, the Dow (+2.1%), S&P (+1.4%), and Nasdaq Composite (+0.8%) all soared during today’s trading session. High-powered growth stocks took a breather while the value, small-cap, and cyclical sectors stole the show.
“We’re seeing a risk-on trade again today,” Ryan Nauman, market strategist at Informa Financial Intelligence, said.
“A lot of it has to do with the data. The market thinks the worst is behind us and the economy is going to turn around.”
Gregory Faranello, AmeriVet Securities’ U.S. rates trading chief, pointed to the Fed’s “buying frenzy” as one of the several reasons the already extended rally could extend even further.
“Equities are off to a very good start in June,” Faranello said.
“Looking past some clear roadblocks, risk assets continue to move forward off the back of brighter days, reopening the economy and trillions in liquidity.”
Once the liquidity “gravy train” comes to a halt, expect the rally to as well. With GDP severely crunched in the second quarter, some economists think a full economic recovery won’t arrive until 2022.
Stock valuations are far too high if that’s the case. From a purely technical standpoint, the market appears overbought, too.
And though it doesn’t make much sense to more pragmatic investors, the fact is that equities could punch higher still.
Certain companies, in particular – like ConocoPhillips (NYSE: COP) – are primed to soar with the rest of the market if the rally keeps chugging along.
COP, a member of the oil & gas exploration & production industry, has done very well since hitting bottom in late March.
Oil has done little but go up over the last few months, so it’s no surprise to see oil companies rise with it.
And during that time, COP has set three consecutive higher lows. The most recent being just last week. Now, the stock’s trading above key resistance (represented with the trendline in yellow) and the 10-day moving average.
Should COP trade above today’s high, it might make sense to take the stock long with at trade trigger of $45.50.
Best of all, as an oil exploration company, COP could still burst higher even if the general market doesn’t.
With uncertainty still lingering, COP is providing short-term traders with a way to snag some “late in the game” oil market gains – something almost any investor could appreciate at the moment, regardless of which side of the trend they’re on.
