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Market Outlook: The Two Sure Things of Jobs Report Friday

Well it’s Job’s Report Friday, the first Friday of each month when the Bureau of Labor Statistics (BLS) releases the “Jobs” report.  More specifically the monthly “Employment Situation Summary” which consists of the household survey and the establishment survey (monthly payroll numbers).

As with all Jobs report Fridays, two things are almost assured to happen.

First; Economist Steve Liesman, who David Stockman once affectionately referred to as the “Fed’s  embedded spokesman  at CNBC,”  will embarrass himself by putting forth the best possible spin on the numbers, no matter how disappointing.

The second thing practically guaranteed to happen on any given Jobs Report Friday; Economist Steve Liesman will not realize that he is embarrassing himself when he puts forward the best possible spin on the numbers, no matter how disappointing.

Today was no exception; the headline unemployment rate actually fell to 9.0% from 9.4%.  Good news you say, but not so fast. The way the monthly household survey works, if someone is not actively looking for work, they are not considered unemployed, they are considered no longer a part of the “civilian labor pool.”  Thus, the more people who give up looking for work, the lower the reported unemployment number.  Even the Huffington Post understands this.

In the last year the civilian labor pool has shrunk dramatically, and as expected the un-employment rate had dropped, despite the fact that month after month we continue to see such disappointing number is in actual payroll growth.  Including today’s number.

Also on cue, the weather was blamed for the disappointing payroll number (still no word however on whether or not Global Warming was the specific culprit).  Apparently there are some economists who were surprised by the fact that in some parts of the country, it snows during the month of January.

But what does it all mean for the market?  Is the bad jobs report good for the market as it indicates no let up in sight for Fed liquidity operations?  Or is it bad for the market as it indicates the Fed liquidity operations are having limited (if any) effect on the jobs situation?

As of Friday afternoon the jury is out.   After a strong start to 2011, stocks have paused a bit near the 1,300 level on the S&P 500.  Last week the message was mixed as stocks were able to climb to new highs and reach 1,300 level, but there was no real enthusiasm or follow through before an intense (if limited) selloff on Friday.  This week has seen more treading of water, as the markets rebounded back to 1,300, but again have been unable (as of midday) to follow through.

A more telling indicator may be the yield on the Ten Year Treasury Note which has traded back to 3.6% after today’s report.

Indeed the bulk of the stock market rally that began last September has transpired despite the fact that the yield on Ten Year Treasuries has also climbed from 2.38% in October to today’s level.

While stocks were able to mount a furious rally in the spring of 2009 at the same time Ten Year Treasury yields climbed from 2.5% to nearly 4%,  that is not a trend that  one would expect to continue.

One could of course argue that the rise in yields is actually the sign of an improving economy and perfectly consistent with a rally in stocks. Unfortunately there is a bit of a conundrum with this theory:  With the Fed engaging on a $ 600 billion dollar buying binge, shouldn’t interest rates be declining?

In terms of BIA market strategy, for now there is no change in the long term outlook of the BIA Core Wealth Allocation Model Portfolio.

The shorter term focus for the BIA Global Strategy Model Portfolio remains somewhat cautious.  A couple of positions may be added on weakness or continued treading of water.  I would like to see a little more pop or enthusiasm (perhaps with a fall in ten year yields) on the upside before jumping on the band wagon with a fully invested long portfolio (Global Strategy).

I encourage you to add your questions or comments.

Click here to request a proposal from Barnhart Investment Advisory


DISCLAIMER: Nothing in this article should  be construed as a personal recommendation or advice.  Nor should anything in this article be construed as an offer, or a solicitation of an offer, to sell or buy any investment security.  

The BIA Global Strategy Model Portfolio  engages in short term aggressive, speculative strategies with an appropriate portion of an investor’s overall investable assets. Investors should conduct their own due diligence and seek the advice of a financial and/or investment  professional before making any investment decisions


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