As the U.S. economy shed 20.5 million jobs and reached 14.7 percent unemployment in April, the stock market nonetheless saw record gains.
What one has to do with the other is complicated, but that hasn't stopped the financial press from comparing jobs and stocks on a near-weekly basis.
Such headlines as "Dow futures up 200 points even after record job losses as investors bet the worst has passed" from CNBC or "Dow futures rise even as jobs report shows the worst unemployment rate since the Great Depression" from MarketWatch arrive like clockwork after every weekly jobs report.
The Stock Market is Forward-Looking
The monthly report released Friday is the most comprehensive picture yet of how the coronavirus lockdown has impacted the labor market. While it was also followed by a bump in stock markets, Wall Street analysts agree this is not unusual.
"The equity market is not the economy. It is correlated, and it has a high degree of correlation, but they are separate," said Michael Lee, analyst and founder of Michael Lee Strategy. "The stock market is a forward-looking instrument."
In this case, markets had already anticipated the job losses with the historic sell-off in March, which ended a decade-long bull run and saw all the stock market gains made under President Donald Trump wiped out in a matter of weeks.
The initial shock was so profound that investors arguably overcompensated, leading to a short squeeze that is still working itself out. "March 23 was one of the most oversold conditions that the equity market had ever been in," Lee said.
'We're Acutely Aware' of the Cause
Seven weeks later, markets have adapted to a new normal, in which record-breaking jobless claims barely register in daily trading. The fact that coronavirus is the clear cause behind these numbers has also given investors a relative feeling of confidence.
"Some recessions we're not clear on what's driving them until it's over, but in this instance, we're acutely aware," said Jason Ware, partner and chief investment officer at Albion Financial Group. "That increased clarity has helped the stock market."
Whether specific job numbers match expectations can affect investor behavior. Many anticipated 22 million job losses in April, for instance, compared to the 20.5 million reported, but the ability to shock has worn down amid the pandemic.
"Surprise is all relative at this point because we've all been conditioned over the past several weeks to expect such ugly numbers," Ware said.
'The Whole Thing is a Big Bet on Time'
But knowing the cause of the downturn doesn't mean Wall Street isn't still making a bet on the future. The consensus narrative, according to several analysts, is that massive job losses will continue through the shutdown, and then return quickly when a treatment or vaccine is developed and the economy reopens.
This so-called V-shape recovery is one of the more optimistic projections. Others predict more of a W-shaped recovery, which includes another dip in the stock market in the months ahead.
"The whole thing is a big bet on time," said John Petrides, portfolio manager for the wealth management fund Tocqueville. "As we open up the U.S. economy in May and June, the whole thing is an experiment to see how people abide by social distancing when they go out and what's the uptick in new cases."
If the economy reopens, and it leads to another outbreak, Petrides said that would be a clear case in which the stock market might respond negatively.
From investors' perspective, he said it requires a balancing act between three basic variables: earnings, which show the present situation; stock prices, which predict the future; and macroeconomic data, such as a jobs report, which shows the past.
"That's the tricky part of being a stock investor today because the variability of all three of those things is really tricky," he said.