The “re-opening” market rebound continued with stocks marching higher, punctuated with a rally Friday fueled by a much stronger than expected jobs report. A record 2.5 million jobs were added in May, in comparison to a median projection for a loss of 7.5 million. Unemployment fell to 13.3%, still extremely elevated but much below expectations above 20%.

Weekly Returns

S&P 500: 3,194 (+4.8%)
FTSE All-World ex-US (VEU): (+7.4%)
U.S. 10 Year Treasury Yield: 0.90% (+0.24)
Gold: $1,684 (-2.7%)
EUR/USD: $1.129 (+1.7%)

Major Events

• Monday – The ISM manufacturing index rose to 43.1, up from 41.5 in April which was the lowest since 2009.
• Tuesday – Despite predictions that home values may fall this year, prices rose 5.4% in April and inventories for entry level homes declined 25% according to CoreLogic.
• Wednesday – The Trump administration threatened to ban mainland Chinese flights from flying to and from the U.S.
• Wednesday – The S&P 500 completed its best 50-day period ever according to LPL Financial.
• Thursday – Airline stocks rallies on indications of stronger than expected demand for travel and announcements of faster than expected increases in flight schedules.
• Friday – Employers added 2.5 million jobs, shattering expectations and providing hope for a quicker than expected economic recovery from coronavirus shut-downs.

Our Take

With this week’s rally, the U.S. stock market is nearly back to even for the year. Small caps (IWM) and international stocks (VEU) remain down nearly 10%, but all things considered it has been a remarkable bounce-back for equities. Less than two months ago many felt the market and the economy were sinking into the abyss.

The reality is, even as some parts of life return to normal, it is not. The economy is not fully open, and so it is natural that many are struggling to connect the dots between the market and the economy. A bullish view looks at a rapid recovery of economic activity joining forces with massive monetary and fiscal stimulus along with short-term interest rates back at zero. The bearish case says there is no way the world is as good as it was at the beginning of the year. Only time will tell who is right, but our guess is most who tried to time the market over last few months are now in an awkward spot.

Another interesting trend this week was a continued swing from high momentum to more beaten up and unloved stocks. Value significantly outperformed growth, small outperformed big, and momentum ETFs lagged. It is too soon to tell if this will last or simply be a counter-trend rally, but we note that prior to April the outperformance of the biggest stocks compared to small cap, and of growth compared to value had been extreme (as were valuation gaps). We expect there will be massive reversion to the mean at some point. Maybe it has started.