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Market Recap: Friday, February 5

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Stocks rose, adding to Thursday’s record levels after a closely watched report on the labor market missed expectations, possibly making a case for additional fiscal stimulus. Each of the three major equity indexes traded higher. Both the S&P 500 and Nasdaq ended at record closing highs on Thursday, and the Dow closed within 0.5% of its own recent all-time closing high. Friday’s January jobs report showed that the U.S. economy returned to adding back more jobs than it lost at the start of this year, but at a slower than expected rate. Bankrate.com Senior Economic Analyst Mark Hamrick and ProShares Global Investment Strategist Simeon Hyman joined Simeon Hyman Yahoo Finance Live to discuss.

Video Transcript

SEANA SMITH: We've got a couple of minutes here until the closing bell. Dow, S&P and NASDAQ all on track for their best week since November. Russell 2000's best week since June. We want to bring in Mark Hamrick. He's Bankrate.com's senior economic analyst. We're also joined by Simeon Hyman, Proshares global investment strategist. Simeon, let me start with you. The market reaction today, even with the worse-- I guess weaker than expected January jobs report, why are investors able to look past this weak report that we got?

SIMEON HYMAN: Well, a couple of things. First, of course, it's still all about recovery. So what happens in the next month or two really not that critical. But that being said, we've had some good news lately. The big news of the week actually was CBO actually meaningfully upgrading growth prospects.

And we've had other good economic data, too. ISM manufacturing has been over 50 for months. And people say, well, yeah, I guess that would be expected, but it's not services. ISM services has been over 50 for months. And the thing that's in the pocket is what's in the pocket of consumers.

Dramatically high savings rate, that stimulus is going to happen. You've had the conversation with your friends, all the things we're going to do when the pandemic is over. That's even on top of whatever does end up coming out from Washington. So that's where some of the good news is. And if payrolls were a little bit light, then OK, fine. I guess that means that there's hot ads of even maybe a little bit more stimulus from Washington.

ADAM SHAPIRO: Mark, I got to keep it short because we got to get to Jared for the closing bell. But real quick, with or without the stimulus, it would seem this economy is coming back in the second half.

MARK HAMRICK: I don't think so, Adam. I mean, the economy will come back, but the question is, how much and how many households are able to remain solvent or recover more substantially down the road? 10 million unemployed right now, another 13 million, whether those who are part-time working who want full-time work or those who have exited the labor force. So then you're more than 20 million at that point.

Half of households lost income during this downturn. Yeah, so the economy will improve, but even the optimistic CBO report talks about taking years to get back to pre-pandemic levels on unemployment.

SEANA SMITH: We want to get to Jared Blikre here as we head into the closing bell. And Jared, it's been quite a week here for the markets. We mentioned Dow, S&P, and NASDAQ all on track for their best weeks that we've seen in a couple of months.

JARED BLIKRE: That's right, best since November. And the Dow is looking at gains of about 3%, almost 4% here over the last five days. NASDAQ leading, too. And we went over this. I'm not going to do everything in reducto here, but Russell 2000 is up 7 and 1/2% over the last five days. So the reflation trade really kicking in here.

And just taking a look at where we stand with the NASDAQ, we had some nice gains, not only in-- well, this looks like cryptocurrencies. Let's see if I can get out of this. We had some nice gains not only in the mega caps, but also individual names. Apple, for instance, up 3 and 1/2%. Google, Alphabet up 14% after its knockout earnings. And then Tesla up 7%. You see the games here-- the gains here, excuse me.

And then just on the sector action, what a week for energy-- up 8%, followed by communications services. That's a Google story. But then financials, industrials, discretionaries. So lots of participation here. And it looks like we're heading into the closing bell on Wall Street in just a couple of seconds. But I'm just going to leave it on this heavily shorted place here.



ADAM SHAPIRO: All right, everybody. We got a closing bell. We're going to put a wrap on the week. And here's where we're going to finish today. The S&P 500 is going to settle up about 14 points, Dow is going to settle up almost 84 points, and the NASDAQ's going to settle about 78 points higher. Also the sectors that are gaining. Just want to let you know that today, the big sector gain was materials, as Jared was pointing out earlier, up almost 2% or 1 and 3/4%.

Energy still going up. It was up about 1%. Let's bring it back to the guests, and let me start with you, Simeon. Because there seems to be some concern about what happens to the roughly 10 million people who are still unemployed and how we get them engaged back in this economy. When they come back in, wouldn't that necessarily mean earnings because of the spending that will take place, that earnings growth in the second half for a lot of companies would be strong?

SIMEON HYMAN: Look, it's a meaningfully high bar at this point, but an achievable one. The consensus estimates are for about a 30 odd percent increase in earnings. But what's useful to note is that to get that, the S&P 500 only needs to deliver about 300 basis points of margin expansion, but with toplines equal to 2019. So it's achievable.

But we do think it won't be a straight line. And that's why our suggestion is to perhaps stay away from the deeper value trades, but to think about some quality stocks that were left behind in 2020, like consistent dividend growers. The S&P 500 dividend aristocrats grew their dividends 14% last year. And right now, they're trading not only at a discount to the S&P, but they're even trading at a discount to value. So there's a little bit of a little bit of choppiness until we get to the other side.

SEANA SMITH: Hey, Mark, looking at-- taking an even closer look at this morning's jobs report that we got, 49,000 jobs added to the economy here in the month of January, unemployment rate dipping a bit, but do you think that there's more distress in the labor market than what some of these headline numbers are suggesting?

MARK HAMRICK: I do, Seana, and obviously, the beauty, or the lack thereof, is in the eye of the observer. And so, it really is a question, I think to some degree, of what people are experiencing, and then the assumptions and what they know about what is happening around them. And so, for example, we know that ground zero for job loss during this downturn has been leisure and hospitality bars and restaurants. And the deficit to get back to where we were before the pandemic in that area alone is nearly 4 million jobs.

But it's not there alone, Seana. There are many sectors where we're talking about multiple hundreds of thousands of jobs that need to be restored to get back to where we were before. We recently had a survey at Bankrate where we asked individuals about their savings. Only 39% could pay an emergency expense of $1,000 or more from savings.

And other survey work we've done recently indicates that the majority of households expecting that $600 stimulus check do not think that that will keep them financially whole beyond a month. So these are financially fragile individuals, and it isn't just the opening up which is going to restore them to where they were before. It's going to take more than that.

ADAM SHAPIRO: Simeon, let's wrap this up with you. You point out that the S&P 500 dividend aristocrats as a group grew their dividends 14% in the pandemic economy of last year. That seems like it's going to be a tall order to continue in 2021, given the way this discussion has been going over the last couple of minutes.

SIMEON HYMAN: You know, long-term average for the aristocrats is about 8%, which is about double the S&P 500. And I think the consistency of the real cash flows that come out of those companies has been what sustained them through various market cycles. But I would have to say that I'm not quite as bearish about the broader economy. Yes, there's a little bit of a K shape going on here. It's why we think the quality play's better than deep value.

But that household savings rate, we're talking 18%, 19% since the beginning of the pandemic. The long-term average is more like 8%. There are some people who need help. And as much stimulus as we can get pretty much will be fine because it'll be hard to find any inflation going on. I don't really get where kind of the summers argument is because there's a lot of slack in the economy.

But I think this rebound is going to be quite a robust one, again, even if it's a month or two later than we expect. And I think the earnings targets are achievable by companies like the aristocrats, but even the S&P 500 broadly I think will be able to achieve consensus this year.

SEANA SMITH: All right, Simeon Hyman, great to speak with you, Proshares global investment strategist, and our thanks to Mark Hamrick, Bankrate.com senior economic analyst.