When tens of millions of people lost their jobs due to the 2020 novel coronavirus (COVID-19) pandemic, stock market volatility echoed the distress. Throughout March and April 2020, equities devolved into chaos as the markets attempted to price-in an unprecedented economic event. To stay ahead of the curve, traders dedicated immense resources to the study of unemployment reports and stock market correlations post-COVID-19.
In this blog, we’ll take a look at the key U.S. labor market metrics and what they may mean to the American stock markets.
Understanding Unemployment Reports and Stock Market Correlations Post-COVID-19
Along with gross domestic product (GDP) and the consumer price index (CPI), employment figures are among the most scrutinized economic metrics. During the COVID-19 contagion, jobs numbers took on an added importance. Accordingly, traders, analysts, and politicians alike frequently referenced the following labor market studies.
Initial and Continued Jobless Claims
Published by the U.S. Department of Labor (DOL), initial and continued jobless claims measure the weekly number of new and existing applicants for unemployment insurance. Both initial and continuing jobless claims are viewed as being peripheral, short-term labor metrics. Released during the pre-cash open on Thursdays, these reports provide a current look at the U.S. labor market.
During the initial stages of the 2020 COVID-19 crisis, initial jobless claims rose to a high above 5 million (April). As the pandemic wore on, continued jobless claims grew to more than 16 million (July). Both of these metrics hit historic levels, grabbing the attention of both Wall Street and Capitol Hill.
Finding a stock market correlation with the initial and continued jobless claims reports is challenging. Throughout Q2 and early Q3 2020, many negative jobless claims releases were accompanied by equities market rallies. So, although there may be quantifiable unemployment reports and stock market correlations post-COVID-19, initial and continued jobless claims are likely to remain secondary metrics.
Released monthly by the Bureau of Labor Statistics (BLS), U.S. nonfarm payrolls (NFP) is a primary U.S. jobs metric. NFP measures the number of new workers in the nation, exclusive of farm employees, military employees, self-employed individuals, and nonprofit employees. NFP is typically thought of as the premier barometer of job growth.
Amid COVID-19, NFP figures plunged by never-before-seen magnitudes. In the May 8, 2020 NFP release, a record 20.5 million jobs were lost in April as a result of the COVID-19 economic shutdown. However, an inverse stock market correlation proved to be true. Following the May 8, 2020 NFP release, U.S. stocks put in a bullish session with the DJIA and S&P 500 gaining 1.91 percent and 1.69 percent, respectively.
How could NFP plunge and stocks rally?
The answer lies in market expectations. Consensus estimates pegged the May NFP report to come in at -21.5 million. Although the -20.5 million figure was dismal, it outperformed expectations, thus boosting sentiment. The result was a “things aren’t as bad as they may seem” mantra and a subsequent rally for the U.S. indices.
When it comes to unemployment reports and stock market correlations post-COVID-19, the U.S. unemployment rate is the most frequently referenced metric. Calculated by the Bureau of Labor Statistics (BLS), the unemployment rate represents the number of unemployed persons as a percentage of the total labor force. The unemployment rate is published alongside NFP in the monthly BLS Employment Situation Report.
Over the course of the novel coronavirus pandemic, a dramatic uptick in the American unemployment rate made seemingly daily headlines. Amid the spring 2020 COVID-19 economic shutdown, the U.S. unemployment rate spiked from 3.5 percent in February to 14.7 percent in April ―the fastest such rise in U.S. history.
Like April’s plunge in NFP, the 14.7 percent unemployment rate did little to derail short-term equities market strength. In fact, after the May 8, 2020 Employment Situation Report, investment banking giant Goldman Sachs projected U.S. unemployment to peak at 25 percent in forthcoming months. This assertion proved categorically false; rates fell to 11.1 percent for June 2020, and American stocks extended their meteoric rise from March’s lows.
What’s Next for COVID-19, Unemployment, and U.S. Stocks?
By far, the onset of COVID-19 was the most impactful economic event in recent history. Fortunes were made and lost in the U.S. stock markets during the first half of 2020―so what’s next?
Regardless of unemployment reports and stock market correlations post-COVID-19, futures can help investors diversify risk while maximizing reward. To learn more, check out Daniels Trading’s online guide Futures for Stock Traders . In it, you’ll find valuable tips on how to combine futures and stocks into a powerful portfolio.