What happened
Footwear and clothing specialists joined in a broad-based rally on Friday (the S&P 500 closed up 2.6%) to post strong gains. Outperforming the market were shares of:
- Foot Locker (FL 0.74%), which closed up 2.7%
- American Eagle Outfitters (AEO -0.31%), up 5.3%
- and Under Armour (UA 1.18%) (UAA 0.98%), up 5.8%.
Image source: Getty Images.
So what
In the case of American Eagle, there was a bit of good news: Investment bank RBC Capital nearly doubled its price target on the teen clothing stock to $14 a share, citing strength in the company's Aerie brand, as well as strong internet sales. But even so, RBC left its recommendation on the stock at sector perform (i.e., hold, not buy).
And neither Foot Locker nor Under Armour received any analyst love at all today. Rather, two headlines appear to be behind the rally in clothing and footwear stocks.
This morning, the Bureau of Labor Statistics reported that 2.5 million jobs were added to U.S. payrolls in the month of May. Considering the expected 7.2 million decline in jobs, this was especially good news. Moreover, thanks in part to the new jobs, the national unemployment rate dropped to 13.3%.
And second, late on Thursday, New York Mayor Bill de Blasio reaffirmed his city's plan to begin a phase 1 reopening of businesses on Monday. If all goes well, this will proceed to phase 2 early next month.
Now what
Phase 1 of the reopening alone is expected to permit some 200,000 to 400,000 New Yorkers to return to work, and phase 2, which will permit restaurants to reopen for outdoor dining, could add even more.
When you combine this prospect with the reduction in unemployment, and also a very clear trend in new coronavirus cases moderating (we've been circling 20,000 new cases a day for the better part of a month now, versus peak infections of nearly 50,000 back in late April), investors appear to have good reason for thinking that the economy is starting to recover from its pandemic-fueled recession.
Is the economy recovering fast enough to justify the kinds of stock market gains we've seen this past week? I don't know -- just as we don't know whether we'll see a second wave of coronavirus infections emerge as a result of folks finally emerging from the Great Lockdown.
Until we do know, enjoy the stock market's rally, but also take it with a grain of salt. And prepare your portfolio for the possibility of a relapse.
