August 9, 2010
Bad Jobs Number but Market Bounces
The Friday morning report indicated that the employment situation in the U.S. continues to be bleak. There were 131,000 jobs lost during July which was much worse than expected, and the number of jobs lost during June was revised significantly higher as well. This will continue to be a drag on the rate of overall economic growth and the recovery in the housing market. We have written for over a year that until the employment situation improves there will not be a lasting recovery in housing and thus the economy.
This is already the worst jobs recession in this country since World War II and will likely take an extended period of weakness before recovering fully. This continues to be a major theme for the markets as investors deal with a very slow recovery amidst zero interest rates. Even though the Federal Reserve has basically taken away risk free rates of return by dropping rates so low, many continue to struggle with being in the market. There are very few solid alternatives for savers to earn decent yields without accepting more risk. It is almost as if investors are being forced to choose to earn nothing or be in the stock market.
With many of our indicators urging caution we continue to believe that earning zero and keeping cash liquid for upcoming opportunities is the best approach. We have followed these reliable indicators for many years and while not 100% correct, they have kept us out of trouble more often than not. The one encouraging aspect of Friday’s trading is that the market bottomed out early and bounced 16 S & P points into the close. This could be light trading drift up during a late summer Friday or could have been a case of selling the rumor and buying the news on the poor jobs report. Either way it is best to remain cautious heading into a new week.
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Past performance not indicative of future results. Futures trading involves substantial financial risk. Please consult your personal financial advisor before using this information for your own trading purposes.
