Dow, S&P 500 surge after surprise May jobs gains

Yahoo Finance’s Alexis Christoforous and Brian Sozzi discuss today’s market action with Invesco Chief Global Market Strategist Kristina Hooper.

Video transcript

[BELL RINGING]

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ALEXIS CHRISTOFOROUS: And we are off to the races on Wall Street with the Dow shooting up 700 points here right out of the gate as investors react to, I guess we could just call it the biggest payroll surprise in history, perhaps. The government today saying the economy added 2 and 1/2 million jobs while the unemployment rate fell to 13.3% during this pandemic as more economies began to reopen. We've got the broader market higher as well. We'll see how long this can last.

Let's bring in Kristina Hooper, Chief Global Market Strategist at Invesco. We also have with us Brian Sozzi and, of course, Jared Blikre. Good morning, Kristina. This is the first time we're speaking this morning. So just your initial reaction when you saw that jobs report cross the wires at 8:30 this morning, what did you think?

KRISTINA HOOPER: Well, after I picked my jaw up off the floor, I wondered if there could be some mistake. But of course, it appears to be the real deal. And I can only assume that a combination of factors are at play, that PPP is working, and that's certainly part of it, but also that the reopenings have stimulated job growth. And that's exciting.

BRIAN SOZZI: Kristina, now that's--

ALEXIS CHRISTOFOROUS: Now, what brought-- sorry, Brian-- we saw the continuing jobless claims rise in the latest week. Non-farm payrolls, OK, starting to recover, adding 2 and 1/2 million. But payrolls are still down by nearly 20 million, Kristina, since February. So is this report sort of a false sense of security, do you think, for the markets? And do we need to be careful here?

KRISTINA HOOPER: We won't know until we see the June jobs report. We could be getting a false sense of security. But we are in the midst of reopening, so it would make sense that jobs are being created. And you're also seeing the effects of PPP. It is doing what it was intended to do in terms of at least keeping some people on the payroll.

BRIAN SOZZI: You know, Kristina, great point on the PPP loans, because I just got a text from my brother. And he simply texted me, of course, we're to get higher jobs because those PPP loans are, in fact, working. But my question to you is, because they do appear to be working, does that make the case for the government to step in and keep more stimulus coming into this market, keep the economy going along, keep the recovery going, and maybe $1 trillion stimulus plan, a new one, makes sense?

KRISTINA HOOPER: I'm a big believer in that. As we saw in the last jobs report, lower-income workers were disproportionately hit hard. They are the ones that typically don't have a lot in savings, and they also spend much of what they earn.

So they're a critical part of the economy, which, as we know in the US, is driven largely by consumer spending. So it's absolutely critical to keep households solvent. And even though we got one good jobs report, I don't think that's enough to say we can sit back and not worry about any more fiscal stimulus. It's important to continue that stimulus and maintain solvency.

ALEXIS CHRISTOFOROUS: All right, I want to check in with Jared, though, here for early market action. Three minutes into the trading day, it looks like we're gangbusters here for US equities. What is-- what's bringing us higher? And is this a broad-based rally, Jared?

JARED BLIKRE: It's pretty broad-based, except for our tech giants, and we've been talking about that for the last two weeks. But energy, financials, industrials, the leaders over the last two weeks, pushing in additional gains here. And we can see on the Dow heat map, Apple's up 6/10 of a percent. Software's a little weak with Microsoft down 3/10 of a percent.

Staples underperforming. Walmart's in the red. But check out JP Morgan. That's up 8/10 of a percent. And you can see this really big rally. We're basically 16 days from an interim low, and JP Morgan is up 36%, 37% on that. Also, looking at some of the oil plays, those are up as well as crude oil heads to $40 a barrel. We can see Exxon Mobil is up 25% over the last 16 days since this rally began.

And let's just take a look at the sectors. So there's your energy, financials, industrials, materials, real estate all outperforming. Health care, a laggard, as it has been. Staples, tech, communication services, those have been the laggards over the last two weeks, and we can see that if we go to a five-day. Just energy up 15%, financials up 14%. That has been why the Dow has been outperforming.

Let's take a look at our pharmaceuticals because those have been under a little bit of pressure. That's where we see some red, as well as the software names. So we're going to want to track this going forward, because those have been really staples of the tech trade that propelled markets to highs.

But it's nice to see these other groups like financials and industrials catch up. And also, the beaten-down stocks like airlines, which we're looking at right now which have had an incredible run. But we do want to see tech kind of catch up here. And just look, over the last five days, American is up 108%. And we have Save, which is ValuJet-- excuse me-- Spirit Airlines, that's up 94%. Just incredible moves here.

ALEXIS CHRISTOFOROUS: You have to wonder if there's a little irrational exuberance at work there, Jared. All right, thanks for that. I want to get back to Kristina. What do you think about the Federal Reserve, given today's report, Kristina? Are we going to see the Fed hint that maybe the stimulus, which appears to have been working, needs to be unwound a little bit now? And if they were to do that, is that going to be premature?

KRISTINA HOOPER: I don't think we'll hear that from the Fed. What we've heard consistently from Jay Powell, and from other members of the FOMC as well, is that there is a need for significant stimulus. One of the lessons learned from the global financial crisis is that the recovery can be very uneven if you have mostly monetary stimulus and not a lot of fiscal stimulus. So I think what we've heard consistently from the Fed is that call for more fiscal stimulus, so I don't think that one jobs report will make the Fed change its tune and call for a dialing down of fiscal stimulus.

BRIAN SOZZI: Kristina-- Kristina, you know, on the-- on the market, I am sure people are awaking today. They see the better expected jobs report. They see the market in major rally mode. And that fear that we've been seeing on Wall Street, Fear Of Missing Out, FOMO, that now even gains even more steam.

But where do you go? Do you chase some of these tech stocks that are looking a little weak this morning? Do you go into value? What sectors do you like?

KRISTINA HOOPER: I think you need to be broadly diversified. What we're seeing, right, is a broadening of this stock market rally. But given the day, we can see growth outperform, a lot of the sort of secular growth defensive names outperform, and certain days the more cyclical names outperform. I think a lot of that has to do with expectations about the shape of the recovery.

On days when we get good news about reopenings, about infections, that's-- those are days when typically the market expects more of a V-shaped recovery, just like today, and so we're likely to see cyclicals outperform. But there will be those days when news flow is not as positive and the expectation is a slower, more uneven recovery, and that's one typically where we would see secular growth and defensive outperform. So I think we'll see something of a tug-of-war in the context of a broader stock market rally.

ALEXIS CHRISTOFOROUS: All right, but for today, at least, we are going to enjoy this nice rally. Kristina Hooper, Chief Global Market Strategist at Invesco, always good to see you.

KRISTINA HOOPER: Great to see you. Thank you for having me, Alexis.