Record Job Losses in April

ADP released their estimate of job gains (losses) this morning, showing that 20,236,000 jobs were lost in the month of April.  This is overwhelmingly the highest number of job losses posted in any one month in history, which was very close to what the market had anticipated.  For some crazy reason though, stock investors are stepping in and pushing stock prices higher.  This clearly is not rational, so I don’t anticipate it will last.  At this point, however, the Fed and the US Treasury Department seem committed to fund the economy regardless of the cost.  This is why we have seen such a strong stock market and why the housing market has so far not shown much weakness.  Keep in mind that when the borrowed and printed money stops flowing, markets will be forced to stand on their own.  Given the current fundamentals, that wouldn’t be pretty.

Household debt in the US has surged in recent months, fueled by low mortgage interest rates spurring additional borrowing.  This trend has been in place since well before the Covid-19 crisis.  It’s too early to say how much additional debt has been added to the average household the past six weeks.  However, I would speculate that the amount is staggering.  With many out of work, Americans have been forced to use debt to make up the gap of income they have lost.  Even many who are still employed but have faced pay cuts as businesses look to shrink expenses.  Both our government and average households will be in much worse financial situations post-Covid.  That is not good news for stocks, housing or the overall economy.

We will maintain a locking bias.