The newly released May unemployment report was shocking. The consensus of economists and experts was that the United States would lose another eight million jobs in May and that the unemployment rate would soar to 20 percent. In fact, the exact opposite happened. The U.S economy didn’t lose jobs in May, but actually created 2.5 million new jobs, the best one-month job gain in history and unemployment fell to 13.3 percent. As a result of the better-than-expected jobs report, the financial markets continued their impressive run. In fact, the S&P 500 recently closed in positive territory for the year, and the NASDAQ market closed at an all-time high. As opposed to talking about what happened in the labor markets, I thought I’d give you some general observations that I think are important to you.
Although the new job growth in May was great, we still have a long way to go before our economy recovers all the jobs lost because of the Coronavirus. We cannot forget that tens of millions of Americans are still out of work and that our unemployment rate is higher than it was during the great depression. In addition, we are still in the crisis, and the unemployment numbers can easily turn south for June. One month of positive job growth is great, but it doesn’t create a trend. We need at least a couple more months of positive job growth before we can create a trend.
It is great to see that the NASDAQ market is trading at an all-time high and the S&P 500 is in positive territory year to date. When you couple that with the fact that the Dow has had an incredible run over the last two-and-a-half months, you may get the impression that all is well in the stock market. Although I think the markets will not retest its recent lows, I do believe there will be greater than normal volatility for the near future. There are too many issues, such as progress on a COVID-19 vaccination that can cause the market to turn on a dime. Investors need to remind themselves that to be successful you must be disciplined, and you cannot let fear or greed dictate your investment decisions.
For me, what was so shocking about the unemployment numbers was how far off the experts were. I can’t remember when they were off by such a great amount. That being said, I’ve learned that although experts may be good in their particular field, they’re rarely good at making projections. Whether it’s projecting how many deaths would occur in the United States because of COVID-19, or projecting May’s unemployment rate, or projecting the stock market, the experts are wrong frequently. That doesn’t mean that they’re not smart and knowledgeable; rather, it shows how difficult it is to project outcomes, particularly over short periods of time. I bring this up not because I want to call out the experts, but rather, to remind you that particularly when it comes to your investment decisions, projections even by the so-called experts are still guesses.
On a separate note, don’t forget 2019 tax returns are due July 15, so if you haven’t done your taxes, it’s a good time to start.
Rick is a fee-only financial advisor. If you would like Rick to respond to your questions, please email Rick at firstname.lastname@example.org.