NEW YORK (Reuters) – A week filled with US economic data is likely to provide investors with more evidence of the extent to which the coronavirus pandemic has grown, sharpening the debate over whether a rebound in stocks s ‘is justified in an unprecedented downturn.
FILE PHOTO: The Wall Street sign is photographed at the New York Stock Exchange (NYSE) in the Manhattan neighborhood of New York, New York, United States, March 9, 2020. REUTERS / Carlo Allegri
The data series will include reports on retail sales, industrial production and inflation from April, a month in which large parts of the country were stranded when authorities imposed home support policies due to the spread of the coronavirus.
It comes as investors digest a rally that lifted the S&P 500 .SPX index more than 30% from its lows in March, even as unemployment has skyrocketed and large swathes of the US economy are in neutral.
Worse economic data than already dire expectations could support investors’ arguments that the rebound in stocks has gone too far. Few can say, however, whether this will derail a push in which stocks posted their best monthly gain in three decades in April despite weak economic data from the previous month.
“The market has shown its ability to navigate economic data. I think that will continue for the April data, “said Doug Cohen, managing director of portfolio management at Athena Capital Advisors.
The April data parade started on Friday when the Labor Department announced that the US economy had lost 20.5 million jobs this month, the biggest drop in payroll since the Great Depression. Although gloomy, this number was below analysts’ expectations of 22 million job losses.
Two key data points next week include retail sales and industrial production, expected on Friday May 15. The figures could help investors assess the effect of the closings on factory sales and production, said Michael Englund, chief economist at Action Economics.
Economists polled by Reuters expect retail sales to fall 10% in April, surpassing the record drop of 8.4% in March. Industrial production, which fell 5.4% in March, is expected to fall 11.6%.
Significant declines like these worry investors who fear that unprecedented stimuli from the Federal Reserve and the US government have led markets to ignore the massive economic slowdown.
US stocks rallied as the Citigroup US economic surprise index, which measures whether key economic indicators are above or below expectations, fell to multi-year lows.
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Recent gains could falter if US states are to cut back on reopening their economies and unemployment does not fall in the coming months.
“The markets are suffering from cognitive dissonance,” said Rob Almeida, global investment strategist for MFS Investment Management, which manages approximately $ 470 billion in assets. “Even if you reopen the economies … you’re not going to have economic normalization in the second or third quarter.”
Significant gains in technology and communication stocks led the Nasdaq Composite .IXIC to wipe out all of its losses on Thursday since the start of the year. The rebounds in the battered sectors like energy have contributed to pushing up the S&P in recent days.
“A pause (in the stock market rally) may not be surprising, but the dynamism of trade should continue as the country’s reopening accelerates,” said Mohannad Aama, managing director of Beam Capital Management.
Some recent economic data has also declined from the discordant levels of several weeks ago, although it remains weak by historical standards.
Initial unemployment claims for state unemployment benefits fell for the fifth consecutive week to 3.169 million for the week ended May 2.
However, it very much depends on the path the pandemic will take in the months to come. A vaccine or antiviral could speed up efforts to reopen economies and reduce unemployment at a faster rate in the United States and abroad, Deutsche Bank analysts said in a note to customers.
At the same time, “if social distancing proves to be both less effective and / or more disruptive to economic activity than we assume, and that antivirals are less useful, the prospects for a rebound in activity even moderate … “, Indicates the report.
Report by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili and Dan Grebler