- May’s jobs report strengthens the argument for a V-shaped economic upswing through the end of 2020, market bull Ed Yardeni said Friday.
- The report showed the unemployment rate sliding to 13.3% from 14.7% last month, shocking economists who largely expected a spike to roughly 20%.
- The market served as a “ray of sunshine” though recent weeks, Yardeni said, as investors remained optimistic toward a smooth economic reopening.
- Friday’s labor-market data supports their sentiments and could drive the S&P 500 to a new record in mere months, he added.
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May’s better-than-expected jobs report is the latest bulwark of investors’ optimism for a rapid economic rebound, market bull Ed Yardeni said Friday.
Stocks continue to trade with historically high valuations amid hopes for smooth reopenings and avoidance of a second wave of COVID cases. Several experts flagged markets’ current levels as unsustainable and severely detached from the economy. For Yardeni, May’s jobs report rebutted such claims and further supports investors’ rotation back into risk.
“The market has been a ray of sunshine, basically investors being convinced that we’ll get out of this, and the economy will recover along with earnings. So far, that forecast seems to be working out pretty well,” Yardeni said on CNBC’s “Trading Nation” on Friday. “The economy may very well be catching up with the stock market rather than the stock market going off on its own.”
The Bureau of Labor Statistics' latest release trounced expectations, revealing the unemployment rate dipped to 13.3% from 14.7% while economists anticipated a jump to roughly 20%. Payrolls increased by more than 2.5 million, beating estimates for a 7.5 million decline.
The report's release almost instantly spurred analysis into why economists missed the mark so widely. Yardeni believes the lagging effect of the government's Paycheck Protection Program could be behind the positive reading. With the program "encouraging businesses to keep people on their payrolls," firms began rehiring workers through late April and May once loans were distributed, he said.
The labor market data suggested an economic recovery is arriving sooner than expected and revived hopes for a V-shaped trendline for gross domestic product. The US will enjoy a sharp upswing in the third quarter before the trend stabilizes and ushers in slower growth, Yardeni said.
"Real GDP could be down 40% to 50% in the second quarter. But the worse it is in the second quarter, the greater the likelihood we'll see something like a 20% increase in the third quarter," he said.
The bounce-back will also strengthen markets' bull run, he added. Investors should continue to pivot to stocks from bonds as risk assets soar amid growing optimism, Yardeni said. The market bull even sees the S&P 500 reaching new record-highs in just a few months as the economy turns around.
Not all economists are so sure the US is on its way to a V-shaped rebound. Analysts at Rabobank said Monday that, while Friday's jobs report was the "largest and most significant beat ever," it doesn't outweigh lasting risks sourced from the coronavirus pandemic. The firm forecasted a "reverse tick shape," with US GDP plummeting through early 2020 before slowly turning higher through the end of the year.
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