The employment report for May is scheduled to be released Friday and hopefully will mark the worst of the pandemic’s impact on jobs. The unemployment rate is expected to be 19.6%, with the number of jobs lost being an additional 8 million after last month’s 21 million. The market is expecting a very poor report, with improvements in the coming months.
The potential for an improving employment picture is directly tied to the successful transition of the most impacted businesses as the economy reopens, as well as the implications of continued social distancing and other measures to manage the risk of the pandemic on the most impacted business models. Risk markets have been pricing in a relatively smooth transition, where existing or expected future stimulus is enough to offset the lost impact of the overall economy. The market is also pricing in a high level of optimism, and this should not be discounted as market valuations are forward indicators of expected outcomes.
I expect stocks to continue to grind higher and the U.S. yield curve to steepen over the next month as we wind down a long second quarter of 2020.
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