The coronavirus has had a devastating impact on the job market in the United States. Due to the restrictions and the lockdown, a lot of people were forced to leave their jobs. Even now, the situation is still not under control and some expect that the cases will continue to rise.
But as some easing was brought to the country some people returned to their jobs. There has been a spike in job positions which actually proved to be a “savior” for the stock market. Will it be enough for changing the general picture? In this article, we will talk about that topic.
Good expectations for future
During the trading session last week, the S&P 500 index returned to the levels at which it started last year, while the Nasdaq index completed it at new record highs, adding more than 10% since the beginning of January. Such impressive results were achieved against the backdrop of still weak economic data from the United States, where protests continue to burn, and experts say that the market seems to have gone to extremes again.
Despite the generous fiscal incentives and the fact that USD surged and aggressive monetary policy of the Federal Reserve System, a locomotive called the US economy continues to move along a downward path, and the rally in the stock market is entirely due to the hope that emergency measures will work and people will quickly return to their previous lives. Thus, the achievements of the bulls so far seem fragile and unstable – even if recent statistics show that hopes were justified, stocks may well fall prey to the strategy of “buy by rumors, sell-by facts”.
“The history of the markets shows that they are always thrown from one extreme to the other,” said Lee Spelman of JPMorgan Asset Management. “What you see are expectations for a V-shaped recovery, and they may be too optimistic.”
Experts also note that if the “normality” is quickly restored, investors will have a reason to fear that the Fed will curtail incentives, which also poses a risk to the stock market. They draw attention to the fact that the unprecedented measures of the regulator led to a record drop in bond yields, which led to a change in the approach to risk management when investing. Thus, the concept of risk parity faced an existential threat: in the conditions of ultra-low yield on government bonds, the classic ratio of 60% of shares to 40% of government bonds has lost its relevance – it no longer fulfills the previous function of diversifying risks and providing guaranteed income. Investors, in fact, have two options: to reconcile themselves with a fall in income in order to maintain a balance of risks or to look for more highly profitable and therefore more risky assets, which in the long term implies an increase in risks for the financial system.
It is very hard to predict whether the jobs spike will be a determinant factor of strengthening the stock market in the United States, however as the trends show it has had a direct impact on the resolution of the situations as a whole.