Last week’s employment data surprised to the upside again with a 4.8 million increase in payrolls after last month’s revised-higher 2.7 million. The unemployment rate fell by 2.2% to 11.1%. The improvement in payroll gains continued at a time when the number of initial jobless claims remained elevated at more than 1.4 million for the week, while continuing claims remained above 19 million. The differences in employment statistics underscore the challenge of evaluating the impact on the economy during the pandemic. This difficult environment for interpreting fundamental economic data will likely continue for many months. The data on the virus side is equally challenging to interpret, given the local and regional impacts as the economy navigates the pandemic.
The markets will continue to see higher volatility as traders contend with all of the uncertainty. I expect more stimulus in addition to the extension of the Paycheck Protection Program. The stimulus will continue to add support to the markets and economy and push valuations to higher levels than fundamentals will warrant. In the short to intermediate term, it is difficult to focus on fundamental valuation as the commitment to support the economy and markets remains very high.
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