Fears about the pace of the recovery have caused stocks to tumble. Technology stocks are being particularly hit hard with NVIDIA (NVDA) and Micron Technology (MU) down by more than 5% on the day. Financials and homebuilders are also faring poorly. Both Zions Bancorp (ZION) and Lennar (LEN) have large intraday losses.
At the heart of the problem is the labor situation. The employment component in the ISM Survey worsened slightly to 46.2. (Readings over 50 signal expansion, or in this case, hiring.) Initial jobless claims also rose, reversing a previously weekly improvement. Dirk van Dijk pointed out on our Analyst Blog, “In recent weeks progress on claims has stalled out and become erratic.”
Compounding matters is the Monster Employment Index, which also worsened. The index declined to 119 last month from 121 in August. Monster Worldwide Vice President Jesse Harriott observed, “U.S. employers continue to exhibit caution when it comes to hiring.” Shares of Monster Worldwide (MWW) are down nearly 4% today.
Needless to say, traders are feeling pretty darn skittish about tomorrow’s labor report. The consensus estimates call for 180,000 nonfarm payrolls to have been shed and the for the unemployment rate to rise to 9.8%. Keep in mind that forecasts for nonfarm payrolls are usually wrong, so give it a 10% margin of error in either direction. (The actual number could differ by an even bigger number, however.)
So what does this all mean for your portfolio?
First, don’t panic. It’s just normal market fluctuations. Stocks have risen for 7 consecutive months, so we’re overdue for a pullback. Even the strongest of bull markets incur periodic bad days (and weeks).
Second, pay attention to what all of the data is telling us. The economy is getting better and we are moving away from the financial abyss. On the other hand, we’re not seeing a V-shaped recovery. Rather, we’re seeing a slower recovery that is uneven. For some Americans, there is no recovery in site. Other people, however, are finding jobs.
It’s a mixed picture for the economy and we won’t see clear blue skies for awhile. But over time, the labor markets will start to improve. (Not soon enough for many, however.)
Finally, realize that investing is messy. There are no magic numbers that tell you when to buy and when to sell. However, dips can provide buying opportunities. Look for where earnings estimates are being revised higher — e.g. Intel (INTC) — and realize that the some of the positive revisions are for companies that you would not expect — e.g. General Mills (GIS).
As far as today’s economic data, you can access analyses from Dirk and I on our Analyst Blog. Here are some links:
ISM: Recovery Slowed in Sept.
Pending Home Sales Pop
Construction Spending Up Slightly
“Clunker” Spending Takes from Savings
Bernanke Proposes New Oversight
Read the full analyst report on “NVDA”
Read the full analyst report on “MU”
Read the full analyst report on “ZION”
Read the full analyst report on “LEN”
Read the full analyst report on “MWW”
Read the full analyst report on “INTC”
Read the full analyst report on “GIS”
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