Disastrous April Employment Report This Week

The stock market is likely to trade cautiously this week with many corporate earnings releases due and ahead of Friday's April Employment Report.  Although in some sense "old news," the latter will underscore the deep hole into which the economy has fallen.  An upside breakout in the market may require evidence of significant movement in the economy toward re-opening.  Currently, there are positive developments toward this goal, but they may not be sufficient as yet to outweigh all the disastrous news regarding the impact already coming from the shutdown. 

The April Employment Report is expected to show a massive drop in Payrolls and a surge in the Unemployment Rate.  Consensus looks for a 21.4 Mn m/m plunge in Nonfarm Payrolls and a jump in the Unemployment Rate to 16.0% from 4.4% in March.  The markets will get an advance hint in Wednesday's ADP Estimate, which consensus sees printing -20.0 Mn m/m.  While I think the risks are for somewhat less gruesome prints, they still would show the huge damage done to the labor market.

Nevertheless, a close-to-full recovery in the labor market over H220 is conceivable if there is a near-full re-opening of the economy during that time.   Early evidence of whether a significant recovery has begun will be if Continuing Claims start falling.  A decline in the latter would mean re-hires are exceeding newly laid-off workers.  Initial Claims probably need to fall to under 1 Mn per week for this to happen.  This is not expected in this Thursday's Claims report.  Consensus looks for Initial to fall to 3.0 Mn from 3.8 Mn in the prior week.  Continuing are seen rising to 19.550 Mn from 17.992 Mn. 

There are positive developments pointing to a gradual re-opening of the economy.  The regulatory approval of  Gilead's Remdesivir drug will hopefully lead to a faster decline in virus-related hospitalizations.  A number of different testing procedures appear promising.  Virus-killing UV emitting robots/machines are being produced and put into action at hospitals and hotels.  And, a vaccine might be ready by September.

Meanwhile, some states have begun to slowly re-open businesses.  Motor vehicle factories are scheduled to re-start operations during the first half of May.  And, Macy's plans to re-open all its US stores over the next 6 weeks.  A re-opening of retail stores, restaurants, amusement parks and hotels will be an important development that would result in a large number of re-hiring.

But, New York City and environs are likely to remain in closure mode for awhile longer.  With Governor Cuomo deciding to keep schools closed through June, the start of re-opening there may not begin until July.   The markets will likely move sharply higher when they do move toward re-opening. 

In addition to a start of business re-openings, anecdotal evidence suggests consumer demand has turned up.   GM and other motor vehicle companies saw a pickup in vehicle sales in the second half of April.  Apple also saw improvement in sales then. And, oil demand may have bottomed.