Bad News Is Good News?

By Matthew Klein |  Friday, December 4 Bad Is Good Now? The big news of the day was that the U.S. economy just finished its worst month for new jobs since the recovery began in May, with many sectors experiencing outright employment declines. That’s not obviously bullish, but nobody seemed to care. The S&P 500 large-cap index, the tech-heavy Nasdaq Composite, and the Russell 2000 small-cap index all breached new highs today.  The latest data show the economy slowing sharply into the winter thanks to the resurgence of the virus and the exhaustion of income support. Employment fell at restaurants, retailers, public schools, nursing homes, and much of the white collar workforce. And the viral outbreak has only gotten worse since the Bureau of Labor Statistics did its November survey several weeks ago. The optimistic view is that the end of the crisis is in sight. Most people should be vaccinated by the end of 2021, which should allow a swift return to normalcy. Investors are willing to ignore whatever happens in the short term to get a piece of the longer-term upside.  As for what happened today to prompt the run-up in stocks and other risky assets, there isn’t an obvious answer. One possibility is that investors may believe that the bad news on the jobs figures could be enough to push Congress and the White House to agree to a deal to provide Americans with additional income support and extend forbearance programs. Energy stocks dominated the leaderboard, with the top 12 gainers all in oil and gas, led by Occidental Petroleum (up 13.4%), Diamondback Energy (up 12.7%), Marathon Oil (up 10.7%), Apache (up 10.5%), and EOG Resources (up 10%). Within the S&P 500, only 89 components were down, while 7 of the index’s 11 sectors were up more than 1%, led by the cyclical sectors of energy, materials, real estate, financials, and industrials. The bullish sentiment extended across other asset classes. Oil prices are almost back to $50/barrel, and the copper price just hit its highest level since March 2013. Stocks in much of the rest of the world were also up, with Korea’s Kospi Composite hitting a new all-time high. Watch our TV show Fridays at 10 p.m. or 11:30 p.m. ET; Saturdays at 10 a.m. or 11:30 a.m.; or Sundays at 7 a.m., 10 a.m., or 11:30 a.m. This week, see an interview with Shopify President Harley Finkelstein on the outlook for the holiday shopping season and the future of retail.

 

DJIA: +0.83% to 30,218.26 S&P 500: +0.88% to 3,699.12 Nasdaq: +0.70% to 12,464.23 The Hot Stock: Occidental Petroleum +13.4% The Biggest Loser: Ulta Beauty -3.5% Best Sector: Energy +5.5% Worst Sector: Utilities -1.0% Barron's Executive Briefing on Investing and Money Business and investing leaders are invited to attend the Barron's Executive Briefing on Investing and Money on Monday, Dec. 7, at noon ET. Examine the business climate, disruption, investing opportunities and the outlook for 2021, with journalists in conversation with Abigail Johnson, CEO of Fidelity Investments, and Jim Chanos, founder of Kynikos Associates. Register here.