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Historically Bad US Unemployment Data – Where To From Here?

The S&P 500 closed at 2’954.23 on Friday, its second highest close since the 10th of March. Global markets have continued to surprise with a steady recovery in the most uncertain of times.

The attention the last couple of weeks in US markets have shifted to the release of first quarter (Q1) earnings for any signs of how the current pandemic have affected profits. So far, it’s been a mixed bag with more companies missing analyst estimates than beating them, but it looks like investors are choosing to look past them for the moment. More and more companies are coming out with future profit warnings though when the consequences of the lockdown will fully reflect in their numbers.

Last week the US released their latest employment data. US non-farm payrolls for April decreased by 20.5 million, with continuing jobless claims for the 1st week of May at 22.65 million. The unemployment rate, which a couple of months back were at an all-time low of 3.5%, came in at 14.7% (the actual rate is estimated closer to 20%).

Below I have 2 graphs of how these numbers compare historically:

US non-farm payrolls


Continuing jobless claims


When looking at the above graphs, it is astonishing how the 2008-09 financial crisis pales in comparison to the current one. The 2 crises are not the same and, granted, the US Fed has reacted much earlier with lessons learnt during 2008-09, but the economic impact a lot more severe.

The S&P500 has retraced about 61.8% of its most recent high on the 19th of February – an important Fibonacci level. It was at this same level on the 29th of April and worth keeping an eye on to see if it breaks through or finds resistance. The VIX (CBOE Volatility Index) closed below 30 on Friday and has been on a steady decline ever since mid-March – this is the lowest level the index has been since the beginning of March. Look out for a spike in the VIX that might indicate another potential sell-off as uncertainty regarding the future direction of markets are sure to return.

The longer the current situation goes on, the more and more I think we are becoming numb to the magnitude of the numbers. As of the time of writing, there are almost 4.2 million cases globally with over 280’000 deaths – the US accounting for about 30% of both. The numbers itself is not the scariest thing, but the knock-on effect it has on global economies are. When you see footage of the busiest cities in the world desolate with no stores open, it reminds you of some kind of post-apocalyptic movie. The problem is that this time it is not a movie, but currently our reality.

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Stephan Maritz

Stephan developed his passion for the markets while working in the Stockbroking division of Standard Bank and is especially passionate about trading (Equities and CFDs). Stephan studied at the University of Stellenbosch and completed a BComm Honours (Business Management) with a focus in Portfolio Management and Bonds. He has also passed the JSE Equity Trader's Exam, RE5 and RE1 Exams as well as the Registered Persons Exams (RPEs) in order to give advice on equities and is a full-time trader and portfolio analyst.