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Stocks fall on worse-than-feared jobs data — strategists talk what's next

Stocks fell slightly after disappointing U.S. jobless claims data

The June rally is on pause.

Stocks slid on Thursday after worse-than-expected U.S. unemployment data hit Wall Street, countering the bullish sentiment that took hold at the start of the month around an impending economic recovery.

As strategists watch the market's moves, many of them are staying focused on the long term.

Here's what four of them told CNBC on Thursday:

Market vs. economy

Glenn Hubbard, former chairman of the Council of Economic Advisors, insisted that investors know the difference between the market and the underlying economy:

"The stock market's not the same thing as the economy. It's very forward-looking and it's picking up, obviously, the chance of a recovery, but also very low levels of interest rates and discount rates, a lot of Fed action and the importance of names that have a lot of market power in the current environment. So, it's not that the stock market's wrong. It's just not the same as the economy. And the economy — I agree, the initial claims numbers, which are coming in right around what economists had forecast, are relatively good news. Continuing claims are still high. To me, the question going forward — and I certainly hope the ADP number is right — is how quickly the labor market does heal. And that's going to be a lot about how we help small businesses, how we help people retrain and get new jobs."

Rally hopes

Mona Mahajan, U.S. investment strategist at Allianz Global Investors, saw "hope for a sustained rally":

"I think there are a few technical factors that we've now hit that are giving us some hope. Number one, the S&P last week crossed that 3,000 threshold. Now, that's not only a psychological barrier, but it was also a technical 200-day moving average a lot of investors were looking for. Though, perhaps more importantly, what we saw really in some of the above-average cash levels sitting on the sidelines during this 30%, now 40% rally, both in the institutional space and the retail space. Now, many of these players now have to play some catch-up to get other performance levels looking at least in average or in line with the indices. How do they do that? Well, one, they could try to chase some of these Covid winners, the tech and the health-care names, or they could really look to some of the laggards in the market, sectors like the financials, industrials, parts of the energy complex. And, clearly, since mid-May, what we've been seeing is that there has been this rotation to some of those laggards. Of course, that's also driven by the better health numbers coming out of the coronavirus cases and the increasing mobility in reopening story we're seeing across the country. So, some good technical factors. We've run a bit. Periods of consolidation are natural, but we see some hope for a sustained rally here."

Tracking the recovery

Oksana Aronov, head of market strategy at J.P. Morgan Asset Management, cautioned against getting too hopeful:

"It's not making a whole lot of sense, frankly, because, yes, absolutely, we're recovering off the bottom. Our economy plunged to, what, something like 60% of its economic peak in the second quarter. That's the expectation. However, as we recover off of that incredibly low bottom, we have to go back to pre-pandemic levels of economic activity to justify pre-pandemic levels of valuations, which is where we seem to be firmly headed with this market. And an economy rebounding back to 75% or 80% or even 90% is simply not going to be good enough, because even in 2008-2009 in that pretty terrible financial crisis we had, the economy was functioning at roughly 95-96% of its capacity. So, I think optimism here is a bit premature. And to quote one of my colleagues at JPMorgan, 'V most likely stands for Very Unlikely' in terms of a recovery being V-shaped. So, I think here is a perfect opportunity to harvest at least a little bit of liquidity to deploy it as things start to really be clear that creating supply, meaning reopening the economy, does not automatically deliver demand."

Market misconception

Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management, said he wouldn't bet against a faster-than-expected recovery for stocks:

"To me, you don't have to recover all of the lost GDP or all the lost jobs for the market to move higher, especially parts of the market that have been hit and do reflect what has actually happened economically like small- and mid-caps and value stocks. And so, if I take you back to the great financial crisis, the employment in America did not trough until [December] of '09. We did not get all those jobs back until [November] of 2014. And yet the market moved higher by 23% per annum during that time period. I'm not suggesting this time will be the same. I'm not calling for 23% returns. But I think it's sometimes misperceived that we have to get everything back for the market to move higher. And I would also note that valuation on some stocks is high, but not all. So, on small- and mid-caps, they are cheap relative to large caps and, to me, that is where the opportunities are, the more economically sensitive, as we continue to reopen and do so in a way that doesn't increase the Covid cases. That's the wild card, but so far, so good."