Coronavirus crisis cancelled?

On the first Friday of every month, economists, investors and the business media bate their breath to hear how many jobs the US economy added or destroyed in the previous month.
 
And it’s a measure of how crazy 2020 has been that the most recent number being ten million out versus expectations feels like just another shock for us to process.
 
Economists estimated eight million US jobs were lost in May. That would have followed the 20 million jobs gone in April as a result of the Covid-19 pandemic, which had already pushed the US unemployment rate to 14.7%.
 
However, the US economy actually gained 2.5 million jobs in May.
 
Far from firing people, businesses turned on a dime and hired them!

Dawn in the USA

Why does this matter in Britain?

Several reasons.
 
Firstly, they say when America sneezes, the rest of the world catches a cold.
 
Well, the flipside is true, too.
 
If the American economy is already shaking off the virus then perhaps it can pull us, Europe, China and everywhere else out of our torpor with it.
 
Also, the Covid-19 crisis has been all about looking to see how other countries are faring for clues as to what might happen at home.
 
That’s what we did when the virus first hit other countries. The same is true now we’re looking for clues as to how we’ll emerge from our suspended animation.
 
There’s a third reason for UK investors to cheer more US jobs, too.
 
Many of the UK’s largest companies are truly multinational.
 
Even if the UK economy remains mired in quicksand, if the rest of the world gets going – led by the optimism of US firms – then that could be good for big British companies, even if our smaller domestically focused outfits continue to struggle.

American beauty

The US market rose sharply on this surprising jobs report.

Of course it did, you might think.
 
But the market doesn’t always go up on what seems like obviously good news.
 
If the US economy is turning faster than expected, it might put the brakes on further monetary and fiscal support from the Federal Reserve and Washington.
 
That would be bad for equities if, as some argue, the gains we’ve seen since the lows are predicated on both central banks and politicians pumping out money like it truly does grow on trees.
 
Fortunately, I don’t believe easy money is the only reason shares have risen.
 
I suspect the savvy market sniffed out an improving picture long before most of us mere mortals could see it coming – blindsided as we were by the horrible death tolls, the job losses, the empty streets and the shuttered shops.
 
For sure, central bank action averted a breakdown in the financial system back in mid-March – and shares responded positively to that risk going off the table.

And titanic spending by national governments to support their frozen economies was necessary if we were to have any hope of seeing even the least vertiginous V-shaped recovery.
 
Necessary but not sufficient…
 
Because we also needed to see business raring to go as soon as it was let off the hook – and to see consumers ready to spend again after months in hibernation.

And – just maybe – that’s what the market’s rise has anticipated, and this strong jobs number confirms.

I want to ride my cyclical

So what should investors do if the coronavirus crisis is coming to an end?
 
As I said, markets have already made quite a strong comeback.
 
However, many shares still look pretty depressed compared to January.
 
Until recently, the stock market rally was mainly centered on growth and technology shares that seemed set to prosper whatever happened with the virus.
 
Only in the past couple of weeks has it broadened out to lift the prices of more cyclical companies – banks, industrial firms, commodity producers, and the like.
 
This could bode well for the British market. The FTSE 100 has a woeful exposure to technology sector, but it’s over-weighted with companies that will benefit from a sustained uplift in the global economy.

From banks and the oil majors to miners and the beverage behemoths, the UK market offers lots of ways to prosper if the world leaves lockdown en masse.

Assume your recovery position

There’s that word ‘if’ again!
 
Because lots of unknowns still lurk at the end of every positive paragraph.
 
Will we see a second-wave of the virus?
 
Or will the economy only recover to 90% of capacity, say, due to social distancing curbing the viability of the hospitality, retail, and entertainment sectors?
 
A 90% economy could see many companies struggle, landlords crumble as rents are unpaid, and banks – and bank shareholders – getting left to pick up the bill.
 
So yes, the US jobs number suggests we’re into a new act of the economic impact of Covid-19 saga. But this story surely has some way to run.
 
Given the chaos of 2020, you’d be brave not to expect another plot twist!