Double Dip Or Prolonged Recession?

The labor market could be in trouble. It might be weakening which shouldn’t be surprising because over 1/3rd of the economy is facing an economic contraction due to COVID-19 coming back into the forefront. Weakness is devastating when you start at double-digit unemployment; plus, the extra $600 in weekly federal unemployment benefits will run out on July 25th. It’s unlikely this negative turn is priced into the stock market unless you think cloud and EV tech stocks should rally no matter what the news shows. These stocks are being viewed as safety stocks. The reality is there is safety in value; high price to sales ratios normally aren’t good values. Valuation depends on growth, but almost across the board, valuations levels are above their recent averages.

As you can see from the chart above, the civilian unemployment household pulse survey showed 5.6 million jobs added from the reference week in May to the reference week in June. Remember, monthly BLS surveys don’t measure the whole month. They only measure data from one week. The household pulse survey shows a 1.3 million decline in employment in the past 2 weeks.

2 weeks from that reading is the July survey week. Unless the data turns around, this signals there will be job losses in July. We knew July would create fewer jobs because there are fewer people left to come back to work, but markets weren’t pricing in job losses when they were being bid up following the previous two labor reports. This report could shock the market. However, the market usually prices data in ahead of time, so we might see selloffs on weak jobless claims reports if they materialize.

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