Daily State of the Markets 
Friday Morning – August 7, 2009

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Good morning. Although the market opened higher on strong overseas performance and some decent economic news, the gains quickly turned to modest losses yesterday and investors basically spent the rest of the day shuffling along waiting on this morning’s Non-Farm Payroll numbers.

While I apologize for sounding like a broken record, we have argued that stocks have rallied off the July low – to the tune of +14.4% in less than 4 weeks – on the idea that the recession is ending. It also hasn’t hurt that the earnings season has been significantly better than expected. Thus, as we’ve mentioned a time or three, it would appear that this combination has forced underinvested mutual fund managers to stop worrying about the return of the bear and to start worrying about keeping up with the S&P 500.

We’ve opined that it is fund managers returning their mutual funds to a fully invested position that has been the driving force behind the latest run for the roses. We will also suggest that at some point this seemingly endless flow of buy orders will begin to fade and that the fundamental question regarding the strength of the economic recovery will take over as the market’s driving force. And this brings us to the question of why this morning’s jobs report seems to be even more important than usual.

Most every economic forecast I’ve seen suggests that the recovery is likely to be a little lame. And just about everybody agrees that the job market is going to remain a challenge for quite some time as the phrase “jobless recovery” has been used early and often. And most everyone that has been around this game a while understands that job totals are a lagging indicator in relation to the state of the economy. So, given that the recession hasn’t even been declared dead yet, I must admit that it is more than a little surprising to see so many people sitting on the edge of their seats worrying about the July jobs numbers.

It’s as if the fast money types believe a bad report will negate the idea that the recession has ended or that the earnings season wasn’t half bad. And it’s as if a good report will confirm all of the above and provide a reason for stocks to continue their upside dance uninterrupted.


But in reality, we should probably recognize that this particular report won’t really tell us all that much about the economy. We KNOW that the economy has been losing jobs and will continue to do so for some time. And the fact that the recession may be technically ending doesn’t change this. So, why are so many talking heads putting so much emphasis on a number that has a snowball’s chance in Haiti of showing any significant improvement at this time? The answer, of course, is because the market cares and the bottom line is that this is all that really ever matters.

So, despite my view on the overall importance of the data, the clock says we should probably get to it. The Labor Department has just reported that the economy lost just 247,000 jobs last month, which was significantly better than the estimate for losses totaling 325K. In addition, the Unemployment rate was better than expected at 9.4% vs. 9.6% and average hourly earnings increased by +0.2%. In short, this report confirms the economic stabilization theme and appears to be bullish for stocks at the outset.

Running through the rest of the pre-game indicators, with the exception of Japan, the major overseas markets are down across the board. Crude futures are moving up with the latest quote showing oil trading up by $0.17 to $72.11. On the interest rate front, we’ve got the yield on the 10-yr trading up significantly at 3.87%, while the yield on the 3-month T-Bill is trading at 0.17%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a higher open. The Dow futures are currently ahead by about 70 points; the S&P’s are up by about 8 points, while the NASDAQ looks to also be about 13 points above fair value at the moment.

Enjoy your Friday, have a pleasant weekend, and until next time, “may the bulls be with you!”

David D. Moenning
Founder TopStockPortfolios.com

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