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'My first reaction was disbelief': Commonwealth Financial CIO on May jobs report

As the daily spread rate of the coronavirus drops to about 1.1%, the lowest rate since the epidemic started, and testing improves, many Americans are optimistic about the pandemic. However, medical professionals are worried that the protests across the U.S. will cause a jump in coronavirus cases, causing a second wave of the coronavirus.Commonwealth Financial Chief Investment Officer Brad McMillan joins The Final Round panel to break down the recent market optimism and what to be wary of in the coming weeks.

Video Transcript

- It's great to have you on the show. Just what is your reaction to this jobs report, the stunning number, much better than expected, a little confusing once you start to compare it to the jobless claims numbers that we found over the last several weeks, but what do you make of this?

BRAD MCMILLAN: Well, my first reaction frankly was disbelief. I actually thought there had been a mistake in the data reporting. So you know, this is a remarkable surprise.


And when you just take the numbers at face value, you say, OK, wow, that means 10 million people approximately moved back into work this month. We're in the first two or three weeks of the reopening, and that many people moved back in. Now, even if the numbers aren't right, that's still a pretty impressive number. And I think it says things are going better than people think.

- And if things are going better than people think, I think the big question is whether or not this is the start of a trend. We heard President Trump say this morning that the jobs numbers will kick off this long growth period. Do you think it's too early to make a statement like that?

BRAD MCMILLAN: Yes, I do think it's too early. But then if you look at the other data, we're also seeing some very interesting and supportive numbers. We're seeing car sales come back very, very strongly. We're seeing mortgage applications quite high. If you look at the recovery in restaurant bookings in the states that are opening, they're saying we're going to be back to normal sometime between July and October. There's a lot going on. It's not just the jobs.

- You know, Brad, let's maybe just stick with the stock market for a second and what we're seeing in the market. Obviously the market at this point has its own kind of inertia, its own momentum that's sending it on its own path. When you look at what's happened-- we were talking with [? Jared ?] last hour about the rally we've seen in the regional banks, the rally we've seen in homebuilders in just the last couple of weeks. What's the market look to you like at this point in the proceedings?

BRAD MCMILLAN: You know, it's funny. If you just look at the chart of the market, it goes down and then it goes right back up. There's your V-shaped recovery right there. That's what the market is expecting.

And in fact, you can see that, and you can say, OK, from a valuations perspective, the market's expecting us by the end of the year to be back where we were at the start of the year, back in a boom period. The market is saying everything's going to be fine. I think that's a little optimistic, but we've got a much better chance of that now than we did two weeks ago.

- Well, and I guess, Brad, that we've heard so often about people concerned about a retest or the market's run too far too fast. But does that conventional wisdom, that there's something wrong with the market, feed this beast that has continued to drive stocks higher?

BRAD MCMILLAN: Well, certainly you get-- the stock market climbs a wall of worry. And lord knows we have a lot to worry about or we've had a lot to worry about. But then you look at it, and you say the virus continues to be under control even though we're reopening. The fed and the feds have dumped trillions of dollars into the economy. You know, other things being equal, if we don't have another round of shutdowns, what do you expect that money to do? It's going to flow right into assets, and that's what we're seeing.

- Hey, Brad, Rick Newman here. So the recovery we're seeing in both the labor market and the stock market, how much of this is monetary and fiscal stimulus? How much of it is real economic activity? And does it matter if it's one or the other?

BRAD MCMILLAN: At this point, I think it's mainly fiscal and monetary stimulus. But as the jobs numbers show, we're starting to get back into the real economy. Because remember, all of this was just intended as life support for the economy to keep the economy alive until we could reopen.

Well, apparently it worked. And we're starting to see the economy come back faster than people thought. We're not out of the woods. But thus far, the news is really good.

- Brad, I know the focus today is on these jobs numbers and just looking at how quickly the recovery is going to happen. And yet, I think it lost in some of this what President Trump said in the press conference today. He kind of alluded to the trade deal with China, saying I don't know how I feel about it. I don't know how I feel, if I feel the same way that I did about it three months ago.

And I feel like that risk has kind of been creeping in and out of the market since last week. How do you assess that right now? I mean, is it really all just about the recovery, or is there a chance that we start to see some of the geopolitical elements start to creep back in?

BRAD MCMILLAN: I actually hope we see the geopolitical elements come back in. Because that means that everything's OK with the virus and the economy is healed enough. Right now the whole geopolitical element is getting absolutely swamped by everything else that's going on.

So I would regard that as a measure of success. I don't think we're there yet. I think what happens with China is certainly important. But from an economic perspective, it's not going to move the needle as much as everything else.

- Shauna, unmute.

- There we go. Sorry, I was on mute there for a second.

- It happens to the best of us.

- Brad McMillan of Commonwealth, great to have you on the show. Thanks so much for joining us this afternoon.