by Maurice (Mo) Spolan, Investment Research Analyst
The U.S. stock markets rallied last week, spurred by an employment update which indicated that the U.S. economy added 2.5 million jobs in April, the largest monthly increase since at least 1939. Approximately half of the job gains were the result of furloughed workers returning to their posts, particularly in the travel & leisure sector of the economy. The job number arrives in stark contrast to economists’ expectations, which anticipated that the unemployment rate would expand to near 20% upon the report’s release. While April’s job statistic was a positive surprise, U.S. unemployment remains historically high, at 13.3%.

Since March’s lows, U.S. equity markets have staged their most prodigious 50-day increase of all time, up over 40%. The major indices now rest within a handful of percentage points of their all-time highs achieved in February. It is confounding for many to witness stocks rise amidst a pandemic and the considerable domestic and international political tensions now present. To provide some explanation for this apparent dichotomy, we offer two thoughts. First, a stock price reflects the future profits of the company to which the stock corresponds. Because of this, news and developments are only incorporated into stock prices to the extent they impact company profits. Therefore, events which may be significant in many respects, but do not affect companies’ fortunes, will not play a role in setting stock prices. Second, in the period of time since COVID-19 has proliferated, interest rates have fallen dramatically. Because interest rates are now lower, bonds are less attractive to investors, and as a corollary, stocks look more enticing. In turn, investors have been buying stocks, and stock prices have risen.