10 Forces Driving the Stock Market Gains and the Economic Recovery

Jon C. Ogg

While the total jobless claims have come to over 38 million in the past 90 days or so, the reopening of America is bringing back many of those jobs. The official unemployment rate for May, released in early June, probably will be at or above 20%, but that currently is expected to be the worst report, with a gradual improvement afterward.

Some Potential “Less-Bad” News in Manufacturing

Regional manufacturing remains dismal, but some reports have started to be less bad than prior ones. The Philadelphia Federal Reserve branch released its most current manufacturing indicators for May, showing a deep negative number of −43.1. However, it is a full 13 percentage point improvement over April’s dismal 40-year lows.

What else stood out in the report is that respondents were actually optimistic about growth expectations in the six-month outlook, despite the negative current conditions.

The Philly Fed’s new orders index rose 45 points from April’s all-time low of −70.9 up to −25.7 in May, with over 25% of firms surveyed reporting an increase in new orders versus “zero” in April. While there were still 51% of firms with decreases in new orders in May, that is an improvement from 71% reporting decreases in April. Lastly, the current shipments index rose by a sharp 44 points to −30.3 from April’s record low of −74.1.

Jerome Powell Is No Longer Deemed a Liability

The Federal Reserve also has been far more communicative that this will not be the end of the economy as we know it. Fed Chair Jerome Powell’s “whatever it takes” pledge to avoid a depression and to get the economy back to growth again has added fuel to the economy, after having been ridiculed by President Trump for being too slow and too hawkish long before the recession came into play. Add up two emergency rate cuts to 0% on short-term rates and a pledge to buy trillions worth of assets, and the recovery game was kicked off. The April 29 Federal Open Market Committee (FOMC) minutes even outlined potential predetermined paths to assist the economy further.

Fed-Heads Have Been Proactively Communicating

Other regional Federal Reserve presidents also have been vocal and supportive of the economy. St. Louis Federal Reserve head James Bullard spoke on May 20 and indicated that the fears of a second wave of the coronavirus may not be as large of a risk as feared. He also said that the economic crisis already has reached its peak, with a good chance that there will be a solid economic recovery in the second half of 2020.

Minneapolis Fed-head Neel Kashkari was more cautious in May, but he also said that the U.S. economy likely would be back to growth in the third quarter of 2020, even if it will be a long time before we return to the prior levels. John Williams, head of the New York Federal Reserve, also pledged that the Fed has an unwavering commitment to limit the economic damage caused by the pandemic and to foster conditions for a strong and sustained economic recovery.

Housing May Have Bottomed Already

Housing trends should see a big seasonal bump, as we have been in the spring and are entering the summer housing season. The COVID-19 recession, the waves of unemployment and spending cuts, and the social distancing and lockdown rules have all acted in unison to hurt home sales.