Friday’s unexpectedly good jobs report showed that the country added 2.5 million jobs in May. This is just more proof that the stock market surge since March 23 is real, according to Ed Yardeni, president of Yardeni Research.
The single largest monthly job increase on record caught him off guard. However, he credits the government’s Paycheck Protection Plan. Yardeni says it reached the goal designed for it.
“I was surprised, but with the benefit of hindsight, it kinda makes sense because we had the Paycheck Protection Program that was basically implemented in April encouraging small businesses to keep people on their payroll,” said Yardeni during a Friday appearance on CNBC. “I think what might have happened is that businesses let a lot of their employees go in March and certainly in April, and once they got approval for the PPP loan, they turned right around and called up their employees and said you are still on the payroll.”
Yardeni says the jobs report is further proof that the stock market rally since the March 23 lows is real. He also mentioned that the perceived disconnect between the stock market and the economy is overblown.
“There’s been a lot of chatter about the disconnect between the stock market doing so well and the misery we are still seeing on the health front and the economic front and social fronts. The market has been a ray of sunshine — basically investors being convinced that we’ll get out of this, we’ll solve a lot of our problems and the economy will recover along with earnings,” said Yardeni. He also said, “The economy may very well be catching up with the stock market rather than the stock market going off on its own.”
Yardeni on Economic Recovery
Yardeni said there’s an “alphabet soup of scenarios from V’s, W’s, U’s, etc.,” regarding the shape of economic recovery. He believes we will start out in a V-shaped recovery. Although, he states that it will end up looking more like the Nike swoosh. But he says good news exists. The worse the GDP becomes in the second quarter, the better the stage for a massive recovery in the third quarter.
“I think it’s going to be a V initially, real GDP could be down 40-50% in the second quarter. The worse it is in the second quarter the greater the likelihood we’ll see something like a 20% increase in the third quarter and maybe something like 5% in the fourth quarter,” said Yardeni, “So it’s going to look like a V in the second half of the year but V means you get all the way back to where you were in 2019. I don’t think that’s going to happen very quickly so maybe it’s not going to be an alphabet, maybe it’s going to be more like the Nike swoosh where you have sort of a V bottom and then you gradually start to come back.”
Stocks have recovered almost all of their losses from the February bear market. With this, Yardeni had answered the question regarding where he sees opportunities today. He said that any opportunities disappear quickly, so investors need to act quickly. “I think you look for where things have lagged. But you have to be pretty quick here because the laggards have actually had a big move just in the past week. It’s hard to give people advice when things move so quickly. I think the prospects are really quite good for technology to do well, for healthcare to do well, financials to do well. I think it’s going to be a pretty broad bull market here.”
Most importantly, Yardeni says don’t overthink things. The market has been rising, so don’t fight it, just go along for the ride.
“Go with the flow. Ever since March 23 we’ve seen a rebalancing away from bonds and into stocks, and I think that will continue to be a theme here in the financial markets for the next several months.”