A historically grim US jobs report should be a reality check for investors

The economic devastation wrought by the coronavirus pandemic is about to come into plain view.

What’s happening: The jobs report issued by the US government for April, due Friday, is expected to show that layoffs surged last month and unemployment rose to Great Depression levels.

Economists surveyed by Refinitiv predict that the US economy shed 22 million jobs in April, by far the largest number on record. (The US government’s monthly jobs data dates back to 1939.) The official unemployment rate could skyrocket to 16%.

Investor attention will focus on details that aren’t usually subject to as much discussion. Goldman Sachs, for example, said it will look closely at the number and share of workers on furlough or temporary layoff.

“If job losses are concentrated in this segment, it would increase the scope for a more rapid labor market recovery when the economy eventually rebounds,” chief economist Jan Hatzius told clients.

Joseph Brusuelas, chief economist at RSM, said he plans to scrutinize the data on hours worked.

Analysts may need to justify the current valuation of the S&P 500, which has rallied nearly 29% from its low point on March 23, should we see hours notably decreasing, with a good portion of those still employed at “risk of falling back to working 30 hours per week,” he said.

For weeks, stock valuations have appeared at odds with the economic realities of the moment — a tension the April jobs report is likely to bring into stark relief. Strategists have pointed to the unprecedented support from central banks as a key factor, with interest rate cuts and massive bond-buying programs easing financial conditions and helping markets recover.

But bad economic news will keep surfacing the question: Have investors gone too far, too fast given the risks that remain?

Ed Yardeni, president of Yardeni Research, told clients that a second wave of infections as countries reopen their fragile economies could force stocks to retest March lows.

“That’s not the scenario we expect,” he said. “But in all wars, there are setbacks and lots of uncertainty.”

Uber sees a crisis that lasts quarters — not years

Uber has seen ride-sharing plummet in recent weeks as the coronavirus pandemic has halted travel. But CEO Dara Khosrowshahi told investors that he’s confident the crisis will not disrupt business over the long term.

“We believe the disruption caused by Covid-19 will impact our timeline by a matter of quarters and not years,” he said on a call with analysts Thursday.

The details: Rides dropped by 80% globally in April, but there are early signs of recovery, per Khosrowshahi. The company thinks the United States has already hit its low point, noting that bookings rose last week by 14% in New York City, 8% in San Francisco and 11% in Chicago.

Bookings in large cities across Georgia and Texas, which have begun the process of reopening, have jumped 43% and 50% from their lows, respectively. The company expects the recovery to vary by region, with some areas improving while others retreat.

Khosrowshahi said Uber still wants to achieve profitability, but the company has withdrawn its guidance on earnings for the rest of the year. Last quarter, it lost $2.9 billion. In the meantime, it’s cutting costs; Uber said earlier this week that will eliminate about 3,700 full-time roles, or roughly 14% of its staff.

Bright spot: Uber Eats has seen an “enormous” spike in demand. The question is whether these gains are temporary, or the coronavirus will cause consumers to change their habits for good.

Investor insight: Shares of Uber are up more than 7% in premarket trading, with investors showing some relief after bracing for the worst.

The bankruptcies will keep coming

Another major US retailer has filed for bankruptcy as the coronavirus continues to take its toll on business — and more companies are expected to claim insolvency in the weeks to come.

The latest victim: Neiman Marcus. The company said in a statement Thursday that it entered into a restructuring agreement with creditors that will allow it to “substantially reduce debt and position the company for long-term growth.”

Fitch retail analyst David Silverman notes that both Neiman Marcus and J.Crew, which filed for bankruptcy earlier this week, had significant debt loads following leveraged buyouts that became impossible to manage in the current environment.

“The debt burden ultimately proved insurmountable, particularly given near term operating challenges related to the coronavirus pandemic,” he told clients Thursday.

On the radar: Analysts don’t think Neiman Marcus will be the last domino to fall. JCPenney and Hertz are also contending with significant debt.

Hertz got an emergency lifeline from its lenders this week after missing a payment on April 27. The car rental company now has until May 22 to develop a new financing strategy.

Up next

Hostess Brands and SeaWorld Entertainment report results before US markets open.

Also today: The US jobs report for April arrives at 8:30 a.m. ET.

Coming next week: How did US retail sales fare in April with states and cities enacting lockdowns across the country?