Strong earnings reports, especially from tech companies, drove the markets upwards last week, despite unemployment hitting 14.7%, as the economy shed 20.5M jobs. For context, unemployment reached as high as 25% during the Great Depression. Given the current state of joblessness, why are markets so bullish? Here are the details:
Nearly 30 states have begun to reopen, with another five states with plans to reopen soon. Investors were bullish about the market as the vast majority of states began to reopen facilities ranging from beaches to retail. As money begins to start flowing through the economy again, investors expect a gradual return to market levels before COVID-19.
The Nasdaq is in positive territory year-to-date as tech stocks have continued to outperform despite COVID-19. The Nasdaq, an index weighted towards tech, has entered positive territory since the beginning of 2020 due to positive earnings reports from tech companies, including Facebook (FB), Match.com (MTCH), Uber (UBER), and others. Investors expect the index to reach pre-COVID levels soon enough.
The FDA approved the first antigen test for detecting COVID-19. The FDA approved Quidel Corp's (QDEL) antigen test for quickly screening for COVID-19. QDEL's antigen test can be completed in minutes compared to traditional PCR tests, which can take hours. This test will help the economy reopen by enabling mass testing at the workplace and beyond. We believe this news will drive the markets upward this coming week.
The April unemployment report indicated 14.7% unemployment, with tech companies like Uber contributing with layoffs. The federal government released April's unemployment report last Friday and demonstrated a 14.7% unemployment rate. Unemployment mostly stemmed from the hospitality and travel industry. However, tech companies, including Uber (UBER) have recently contributed to layoffs. Uber is cutting 3,700 workers, while Airbnb and Yelp plan on cutting 1,900 and >1,000 employees respectively. While this is devastating for the employees, investors see this decision by tech companies as a cost-cutting measure needed for these companies to achieve greater profitability.
After COVID containment success, South Korea recorded highest daily infections in a month. South Korea recorded 34 new COVID-19 infections today, the highest one day increase in COVID-19 infections in a month. The U.S. should also expect there to be a second wave of COVID-19 breakouts as the economy opens. However, because countries and people are better prepared for COVID-19, the impact of the second outbreak will not likely result in additional quarantine measures and be dampened in terms of cases and deaths. Furthermore, research is beginning to indicate that even mildly affected COVID-19 cases produce antibodies, suggesting potential for at least partial immunity even from those who had low to no symptoms.
Overall, WX Capital remains optimistic about the U.S. economic recovery. While unemployment is incredibly high, government stimulus have enabled most U.S. citizens to sustain in this difficult situation. The reopening of state economies will hopefully provide the stimulus needed for businesses to start re-hiring those who were laid off, leading to a dramatic decrease in unemployment. The May and June jobs reports will be a strong indicator for our recovery.