Expect more shocking economic data in the week ahead with the unemployment rate set to near 20%

The big rotation into unloved stocks, like banks, small caps and airlines, took a break Friday, but it could be a theme that dominates trading again in the week ahead.

Investors will be assessing the progress of economic reopenings against some new headwinds for the market.


The stock market has been mostly discounting unprecedented weakness in economic data, but the May employment report will still be of major interest Friday. Economists expect it to show another shocking loss of jobs, this time roughly 8.5 million after the 20.5 million lost in April. The unemployment rate is expected to jump to a staggering 19.8% from 14.7% in April, according to Refinitiv.

Increasingly frayed relations between the U.S. and China reared up at the end of the week as a negative force for markets, and analysts expect that stress to continue to be a concern. The U.S. joined with other nations to condemn China’s new security rules for Hong Kong, which Beijing sees as an attempt to quell protesters. 

President Donald Trump on Friday said the U.S. would end its preferential relationship with Hong Kong and also exit agreements with the World Health Organization, which he said failed with China to protect the world from the spread of coronavirus. The stock market moved higher after Trump’s afternoon announcement on relief there were no new trade actions against China.

“Hovering over this is geopolitical tensions. Over the weekend, what do we see out of Hong Kong? What do we see next week? This will be a major test for the west and specifically Washington,” said Quincy Krosby, chief market strategist at Prudential Financial.

Krosby said the market will continue the tug of war as investors dip into value names versus some of the growth names in tech, and the stocks that had benefited from the stay-at-home trade.


“We saw this early as the market came off the March lows. You had a very clear barbell,” she said. “The market tried to say what do we need now, what do we need when this is over and health care and pharma started to get a very strong bid. What you have now is … perhaps intermittent, the value names, the ones that were really beaten up, broadening out the market, including financials.”

Julian Emanuel, head of equity and derivatives strategy at BTIG, said the social media and tech firms face dual headwinds, and that could hold back the overall market as well since they had been leaders in the move off of the March low.  Trump on Thursday issued an executive order aimed at limiting legal protections of social media companies, after he got into a disagreement with Twitter.

“There’s a ratcheting up of pressure on technology firms and social media firms, a lot of overlap in big tech in terms of China exposure,” he said. “There’s a lot of headwinds facing Nasdaq names – shelter in place names and China-exposed technology names.”

Big tech stocks have lagged lately, but they are still a top leader quarter to date, with a 20% gain. In the past week, they were up about a half percent, compared to a 6% gain in financials and 5% rise in industrials. As tech lagged, so did the Nasdaq, gaining only a third as much as the Dow in the past week. 

“This cyclical rally has longer to run, but what we’ve seen this week tells you the index cannot continue to rise solely with the cyclical outperformance. Tuesday and Wednesday the financials outperformed Nasdaq by 9.3%,” he said. Emanuel said the market usually does better when financials do better but this type of outperformance is rare and it doesn’t always signal positives. 

“On average, the market is weaker in the medium term when you had that kind of massive outperformance. The message is both financials and technology tend to be weaker in the medium term. Longer term, you go back to the idea the rotation into financials is a positive,” he said.

Emanuel said the S&P 500 may be hitting the top of a near-term range, after it broke through the 3,000 level, a key psychological point. It also broke through its its 200-day moving average, a widely watched technical level. Some investors see a buy signal when the S&P  is above that momentum indicator, which is literally based on the average closing level of the index over the last 200 days.


But Emanuel does not see that to be the case this time. “When we look at the frantic activity in the rotation, it leads us to believe the market is likely to fall back into the range in the coming weeks,” he said. 

The stocks that have outperformed recently are the most sensitive to the economic reopenings leading to a pickup in normal activity. There is a question of how much air traffic or hotel stays can pick up until there is real medical progress against the virus.  

“These stocks will be a matter of intense debate for months. I don’t think we’ll know the answer until we see if the fall brings a ratcheting higher of the virus, based on reopenings and a change in the weather, or if there’s a change in progress on a vaccine,” he said.

President Trump’s executive order seeking to limit the federal law that provides broad legal protection for social media and other online platforms is one headwind for that sector. Trump issued the order Thursday after Twitter put a fact-check label one of his tweets criticizing mail-in election ballots. The president accused Twitter of political activism.

Twitter, Facebook and Alphabet all protested the move, which hit Twitter’s stock hardest.  

Emanuel said technology’ is at risk in China since companies like Apple have large revenue exposure in addition to supply chain issues.

In addition to the jobs report, there is important ISM manufacturing data Monday and auto sales for the month of May.

Week ahead calendar


9:45 a.m. Manufacturing PMI

10:00 a.m. ISM manufacturing

10:00 a.m. Construction spending


Monthly vehicle sales


8:15 a.m. ADP employment

9:45 a.m. Services PMI

10:00 a.m. ISM nonmanufacturing

10:00 a.m. Factory orders


8:30 a.m. Jobless claims

8:30 a.m. International trade

8:30 a.m. Productivity and costs


8:30 a.m. Employment

3:00 p.m. Consumer credit 



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