• Joel

Stocks Rally as Unemployment Claims Show Signs of Slowdown

The data showed that another 4.4mln Americans have now filed for unemployment benefits, taking the five-week running total to around 16mln, implying a US unemployment rate of around 16%. 

However, the market appeared to react with a sigh of relief; this was the fourth consecutive week where the number had decreased, and many will now be thinking the worst of the economic slump will now be behind us. 

It is clear that while the initial wave of job losses was concentrated in retail and hospitality due to the shutdowns, it is spreading to suppliers and to other industries. Terrible manufacturing surveys point to job losses and the business service sector is certainly not going to be immune.

But markets are now looking forward, as the world starts to move towards a gradual economic reopening. As such, it will be interesting to see what happens in the states that are re-opening parts of their economy from this weekend – Georgia, Tennessee, South Carolina and Florida. It is probably wise to assume that jobless claims will fall back sharply here.

However, if consumers remain fearful (i.e. reluctant to go shopping or visit a restaurant due to lingering Covid-19 fears), then employment is not going to rebound quickly. This would be taken as another signal that a V-shaped recovery for the US economy is highly unlikely.

Looking ahead to April’s official jobs data release on the 8th of May, we have to remember the data is collected in the week of the 12th so today’s numbers will actually be more applicable to the May jobs report, published in early June.

ING comments that “if we assume unemployment has risen 20 million in April, that would push the unemployment rate to around 16%. An additional 10 million unemployed in May and we are looking at an unemployment rate of around 22%. Thankfully this is below the 24.9% peak experienced in 1933, but we have to remember that one third of Americans aged 18-65 are not classified as employed or unemployed – they are students, early retirement, homemakers, carers or sick.”

“This leads us to yet another sobering statistic” the bank continues, “that less than half of working age Americans will be earning a wage next month. In an election year, this means that the call for politicians to re-open the economy is only going to get louder, irrespective of the health advice.”

Taking all of this into account, how the stock market saw reason to rally in today’s number beggars belief.



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