Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Week Ahead: V-Shaped Recovery Hopes, New Highs To Continue After NFP Surprise

By (Pinchas Cohen/ OverviewJun 07, 2020 07:25
Week Ahead: V-Shaped Recovery Hopes, New Highs To Continue After NFP Surprise
By (Pinchas Cohen/   |  Jun 07, 2020 07:25
Saved. See Saved Items.
This article has already been saved in your Saved Items
  • Nonfarm payrolls unexpectedly added 2.5 million jobs, with official unemployment rate falling
  • NASDAQ hits new all-time high, as Tech sector continues leading stocks—a troubling sign
  • Oil nears $40
  • Gold falls

U.S. equities surged on Friday—locking in a trifecta of weekly gains—after the monthly jobs report massively beat expectations. The results seemed to support the V-shaped, immediate economic recovery narrative.

Yields reached an 11-week high and oil neared the $40 mark.

Miraculous Recovery Or Over-Stimulated Market?

May's nonfarm payrolls release surprised, showing 2.5 million jobs were added last month, while the unemployment rate fell to 13.3% from April’s all-time high. This buttresses the quick recovery argument by positing that even if it will take some time for growth to return to pre-COVID-19 levels, last week’s jobs data showed we're already on the right track.

Here's what gives us pause however: it took more than three decades for U.S. stocks to return to the heights of the roaring 20’s after the 1929 crash. In 2020 it’s taking us just months.

Of course, it's critical to understand that the 1929 crash and the recovery afterward occurred without a safety net. Now, markets are soaring because of unprecedented stimulus, which the Fed characterizes as unlimited.

Though we certainly don't know the answer, we can't help but wonder: is this a market recovering from its worst decline in a decade, even as the most suboptimal economic data in seven decades continues to be released, or is this a market pumped up with steroids, heading at some point for a meltdown?

As well, the Bureau of Labor Statistics, the agency that collects the data and issues the nonfarm payrolls release included a note at the bottom of the report saying a “misclassification error” had occurred. Based on this note, the “overall unemployment rate would have been about 3 percentage points higher than reported,” or 16.3% rather than the 13.3% announced.

That’s still less than the 19.7% forecast, but it illustrates how challenging it is to gauge even what is generally considered cold, hard data. Which thereby demonstrates just how much uncertainty we’re currently facing.

Data error notwithstanding, this rapid equity rebound all but erased the worst crash in years, with one benchmark, the NASDAQ Composite, even notching a fresh record high on the final trading day of the week.

Noted investor Warren Buffet (NYSE:BRKa) once famously said, “be fearful when others are greedy and greedy when others are fearful.“ The Oracle (NYSE:ORCL) of Omaha just took his own advice, decreasing his exposure to equities from 55% to 25%. His rationale: “stocks are expensive and the economy is terrible.”

The S&P 500 Index added 2.6% of value on Friday, bringing the total rebound to 42.75% from the March 23 low. The benchmark index is now just 6% away from its Feb. 19 record close.

In addition, on Friday, U.S. equities gave their best performance since May 18, when Cambridge, Massachusetts-based biotech Moderna (NASDAQ:MRNA) reported positive vaccine trial data. All four major U.S. indices climbed for the third straight week, their longest winning streak since December.

SPX Weekly
SPX Weekly

The SPX is trading within a broadening pattern, something that tends to develop at market tops when trade lacks leadership. Hence, stocks are drifting in the long-term, posting higher highs but also lower lows.

The Dow Jones jumped 3.1%, to gain 45.8% from its March 23 low. The 30-component mega-cap index is now 9% below from its Feb. 12 record close.

It was the tech-heavy NASDAQ, however (and ironically) which underperformed, rising “only” 2.1%. But it stood out as well, closing just 0.03% from its Feb. 18 record close even as it hit a new all-time high intraday. In addition, it matched the Dow’s 45.8% leap from the March 23 low.

This brings us to another point of concern. Market cycles generally include sector shifting. Previous crashes were usually followed by new market leaders. Technology, however, was the previous market leader. Which means the same group of stocks is leading this exuberant rally.

That's an anomaly. We would have more faith in the current rally if it switched to fresh horses.

The Russell 2000 outperformed both on Friday and during this rally overall, leaping 3.5% during the last day of the trading week, gaining a whopping 52.5% from its March 23 low. Of course, the small-cap index had the biggest distance to make up for; it's still 13.3% below its record close. The domestically focused index topped out more than a full month earlier than its peers, on Jan. 16.

Yields on the 10-year Treasury jumped 6 basis points, to 0.89%, extending a climb to its fifth day in a row, its longest steak since September, finishing at an 11-week high.

UST 10Y Daily
UST 10Y Daily

It’s difficult to say, however, how much of this Treasury selloff was fueled by faith in the economy or simply driven by traders buying short-dated U.S. bonds while shorting long-dated U.S. debt, betting the Fed will continue to keep interest rates depressed.

Yields provided an upside breakout to a symmetrical triangle after reaching the bottom of its falling channel since the 2018 high, suggesting a retest of the channel top.

The dollar rebounded, ending a six-day losing streak and trimming half of Thursday's losses.

DXY Daily
DXY Daily

While oversold conditions are likely to trigger a corrective rally, the next support is at 95.

Gold suffered from a double whammy: a robust equity rally and dollar strength. The precious metal was pushed to its lowest point since April 3.

Gold Daily
Gold Daily

Technically, the price of the yellow metal blew out both a symmetrical triangle, from April 14-May 14, and possibly caused the failure of the larger symmetrical triangle that was still developing. However, gold’s H&S continuation pattern is still in play.

The oil market surprised yet again—much like the equity market. WTI crossed the halfway to $40 after OPEC and Russia reached a deal to extend production caps of almost 10 million barrels a day.

Oil Daily
Oil Daily

From a technical perspective, Friday’s move was powerful. The commodity surged 5.7% and closed near the top of the session, signaling bulls were in control.

However, the price is nearing an area likely to be rife with bearish resistance. That's the $40 psychological level, where bears might begin second-guessing themselves, compounded by the top of the presumed resistance of the March 9 falling gap, which itself was a confirmation of the flipped support of the Dec. 24, 2018 bottom (thick line). Above, looms the 200 DMA at $45.

Week Ahead

All times listed are EDT


19:50: Japan – GDP: expected to rise to -0.5% from -0.9%.


10:00: U.S. – JOLTs Job Openings: anticipated to drop to 5.750M from 6.191M.


8:30: U.S. – Core CPI: seen to have climbed to -0.1% from -0.4%.

10:30: U.S. – Crude Oil Inventories: predicted to surge to 3.038M from -2.077.

14:00: U.S. – Fed Interest Rate Decision: forecast to remain steady at 0.25%.


8:30: U.S. – Initial Jobless Claims: expected to come in at 1,500K, lower than last week's 1,877K claims filed.

8:30: U.S. – PPI: to rise to 0.1% from -1.3%.


2:00: UK – GDP: probably plunged to -18.7% from -5.8% MoM, and to -22.3% from -5.7% YoY

2:00: UK – Manufacturing Production: seen to plummet to -15.0% from -4.6%.

Week Ahead: V-Shaped Recovery Hopes, New Highs To Continue After NFP Surprise

Related Articles

Ross Hendricks
The Pandemic Boom Goes Bust By Ross Hendricks - Jan 29, 2022

The Pandemic Boom Goes BustWelcome to the great fiscal hangover. Over the last 18 months, the U.S. economy enjoyed the greatest stimulus infusion of all time. More than $5 trillion...

FactSet Research Systems Inc
Podcast : Financial Market Preview - Friday 28-Jan By FactSet Research Systems Inc - Jan 28, 2022

US equity futures are indicating a flat to slightly lower open as of 05:00 ET. European equity markets broadly lower, following mixed but mostly higher levels in Asia. Fed rate...

Week Ahead: V-Shaped Recovery Hopes, New Highs To Continue After NFP Surprise

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
George Thorm
George Thorm Jun 08, 2020 6:42
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Good information.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email