Record layoffs and more coronavirus cases mean....a major stock market rally?

We got an indication today about how many Americans are losing their jobs due to coronavirus-related shutdowns. And it was an eye-popping, unprecedented number.

Nearly 3.3 million Americans applied for unemployment benefits last week — almost five times the previous record set in 1982 — amid a widespread economic shutdown caused by the coronavirus.

The surge in weekly applications was a stunning reflection of the damage the viral outbreak is inflicting on the economy. Filings for unemployment aid generally reflect the pace of layoffs....

“What seemed impossible just two weeks ago is now reality,” said Nancy Vanden Houten, an economist at Oxford Economics, a consulting firm. “The US economy will experience the largest economic contraction on record with the most severe surge in unemployment ever.”

The economic deterioration has been swift. As recently as February, the unemployment rate was at a 50-year low of 3.5%. And the economy was growing steadily if modestly. Yet by the April-June quarter of the year, some economists think the economy will shrink at its steepest annual pace ever — a contraction that could reach 30%.

Wisconsin was among those with major jumps in layoffs in that report, with an increase of 45,767 compared to last week, resulting in an official number just below 51,000.

But if you go to the Wisconsin Department of Workforce Development site, it looks like there were a lot more claims than that last week. According to this chart, the number of new applications exceeded 69,000.

As the disclaimer notes, this is different than the numbers in the national report, maybe because of duplicates or because some of these have yet to be reported and/or cleared. But that's still a lot more than 51,000, and the Wisconsin DWD had already received more than 70,000 additional applications by Wednesday of this week.

So between that, and the fact that the US has now overtaken Italy and China for having the most reported COVID-19 cases in the world, I'm sure the stock market crashed down again.

So what gives? CBS Marketwatch's Sunny Oh reports that some of it might be related to the market's collapse over the prior month, and things had gotten so far out of whack that it required a correction.

“The initial stage of the rally is driven by short-covering and rebalancing,” said Nikolaos Panigirtzoglou, a global market strategist at JP Morgan, in an interview.

The analyst said the stock-market’s recovery from the damage done by the coronavirus pandemic will be first driven by market participants who have to buy equities regardless of what they envision for the U.S. economy’s path.

Pension funds and so-called balanced mutual funds need to start re-jigging their portfolios in favor of stocks as the selloff in equities and rally in government bonds has driven down the value of their equity relative to their bond positions. Commodity trading advisors and long-short equity hedge funds have also had to cover their short bets on stocks.

“The investment community and several types of investors have got to very low level of equity positioning in recent weeks,” said Panigirtzoglou.

Pension funds like Japan’s Government Pension Investment Fund, the largest in the world, have more discretion when they rebalance their assets and can wait as long as six months, but could move earlier. Balanced mutual funds like so-called 60/40 funds, which divvy up 60% of their assets to stocks and 40% of their funds to bonds, tend to rebalance every month or two.

Combine that with computers adding to the "momentum", and you get a huge stock market jump on a day with a record number of Americans filing new claims for unemployment.

There's that, and also maybe because coked-up Wall Streeters thought of this song when they saw the massive unemployment figures.



I'm not sure they're right on that hunch. Being knocked down is one thing, but if more people keep getting laid off in the coming weeks and they're not getting those incomes replaced 2 months from now, then people will be past shock and into feelings that are much worse.