Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Intel Empire Fights Back with Rocket and Alder Lake! - 24th Jan 21
4 Reasons for Coronavirus 2021 Hope - 24th Jan 21
Apple M1 Chip Another Nail in Intel's Coffin - Top AI Tech Stocks 2021 - 24th Jan 21
Stock Market: Why You Should Prepare for a Jump in Volatility - 24th Jan 21
What’s next for Bitcoin Price – $56k or $16k? - 24th Jan 21
How Does Credit Repair Work? - 24th Jan 21
Silver Price 2021 Roadmap - 22nd Jan 21
Why Biden Wants to Win the Fight for $15 Federal Minimum Wage - 22nd Jan 21
Here’s Why Gold Recently Moved Up - 22nd Jan 21
US Dollar Decline creates New Sector Opportunities to Trade - 22nd Jan 21
Sandisk Extreme Micro SDXC Memory Card Read Write Speed Test Actual vs Sales Pitch - 22nd Jan 21
NHS Recommends Oximeter Oxygen Sensor Monitors for Everyone 10 Months Late! - 22nd Jan 21
DoorDash Has All the Makings of the “Next Amazon” - 22nd Jan 21
How to Survive a Silver-Gold Sucker Punch - 22nd Jan 21
2021: The Year of the Gripping Hand - 22nd Jan 21
Technology Minerals appoints ex-BP Petrochemicals CEO as Advisor - 22nd Jan 21
Gold Price Drops Amid Stimulus and Poor Data - 21st Jan 21
Protecting the Vulnerable 2021 - 21st Jan 21
How To Play The Next Stage Of The Marijuana Boom - 21st Jan 21
UK Schools Lockdown 2021 Covid Education Crisis - Home Learning Routine - 21st Jan 21
General Artificial Intelligence Was BORN in 2020! GPT-3, Deep Mind - 20th Jan 21
Bitcoin Price Crash: FCA Warning Was a Slap in the Face. But Not the Cause - 20th Jan 21
US Coronavirus Pandemic 2021 - We’re Going to Need More Than a Vaccine - 20th Jan 21
The Biggest Biotech Story Of 2021? - 20th Jan 21
Biden Bailout, Democrat Takeover to Drive Americans into Gold - 20th Jan 21
Pandemic 2020 Is Gone! Will 2021 Be Better for Gold? - 20th Jan 21
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Here Is What Investors Need To Realize After The Terrific Jobs Report!

Economics / Employment Mar 09, 2013 - 01:00 PM GMT

By: Sy_Harding

Economics

Friday’s employment report confirmed the extent of the economic recovery from the Great Recession of 2008-2009.

We’ve already seen the two main driving forces of the economy, autos and housing, leading the way. U.S. auto sales bottomed in 2009 with only 10.4 million units sold, and have seen impressive growth since to the current annualized pace of 15 million units, almost back to pre-recession levels. Home sales and prices bottomed last year and have been recovering at a surprising pace since.


As I’ve argued for several years with those complaining about the jobs picture, employment is a lagging indicator, and would not pick up until those two main driving forces of the economy were recovering in a meaningful way. And now we can see from the jobs reports of recent months that the recovery is finally impacting jobs.

Friday’s report that 236,000 new jobs were created in February was well ahead of the consensus forecast for 160,000 new jobs. And the unemployment rate fell from 7.9% to 7.7%. Even more important, those new jobs were largely the result of growth in the private sector, in construction, manufacturing, retail, and healthcare, gains that were substantial enough to offset the continuing cut-backs in government payrolls.

But investors should not get carried away with the thought that the report indicates the economy and stock market now have clear sailing ahead.

Here’s what investors need to realize.

Historically the stock market tends to act three to six months ahead of the economy in both directions. That pattern has not gone away. The 2007-2009 bear market bottomed in March, 2009 when the current bull market began. The 2008-2009 recession ended three months later in June, 2009.

The stock market has been factoring in the economic recovery since, and has already recovered to its pre-crisis levels, the Dow and S&P 500 now back to their peaks of 2007.

Meanwhile, the economy is merely catching up to what the stock market has been predicting for it.

But as the economy catches up to the market’s expectation, the market will continue to focus on what lies ahead, and at this point it may not be a continuation of what it has anticipated for the last four years.

Through those years the economy has been fueled by extreme easy money policies, record low interest rates, and massive government fiscal and monetary stimulus.  

The government already began reversing the fiscal stimulus last year with cutbacks in federal payrolls, and is significantly stepping up that reversal this year, with the 2% payroll tax increase in January, and now the upcoming automatic ‘sequester’ cuts in government spending, or some negotiated form of the automatic cuts.

Meanwhile, the Federal Reserve has promised to keep its easy money policies and QE programs, including record low interest rates, going well into 2014 – unless the economy improves faster than expected or inflation heats up.

And already we’re hearing hints that the Fed may also begin to remove the QE punchbowl sooner than currently expected.

The president of the Richmond Federal Reserve Bank said on Tuesday that the Fed’s exit strategy is a major concern and “I just fear that small mistakes could get translated into large consequences.” And the president of the Philadelphia Federal Reserve Bank said Wednesday, even before Friday’s impressive employment report, that the Fed should begin scaling back its QE program now.

Markets don’t wait for governments to act, especially on interest rate changes. Already we’ve seen interest rates, mortgage rates, and yields on bonds beginning to rise. In fact bond yields have risen enough that 20-year bonds have seen their value drop 12% since last August, in a fairly serious correction. (Bond prices move opposite to their yields).

It’s not just bonds but also the stock market that loves low or declining interest rates but hates rising rates. So if, as bonds apparently already are, the stock market begins to anticipate higher interest rates, that could be yet another potential catalyst for my expectation that the market will run into trouble again this summer.

Yes, in addition to correctly anticipating the long-term economic recovery, the stock market has also done a good job of anticipating the short-term setbacks within the recovery by rolling over into corrections just before the economy stumbled in each of the last three summers.

So rejoice in the improving employment situation, but don’t fall for the thought that it means clear sailing now for the stock market. It may soon mean just the opposite if it encourages Congress to be more aggressive in cutting government spending, the Fed to begin reversing its easy money policies, or a more pronounced rise in interest rates.

I and my subscribers remain on a buy signal for the market from last fall, but if anything the strong employment report enhances my expectation that the stock market will again run into problems as April and May approach and the market’s ‘favorable season’ ends, by encouraging an earlier removal of the easy money policies that have driven the recovery.

Sy Harding is president of Asset Management Research Corp., and editor of the free market blog Street Smart Post.

© 2013 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Sy Harding Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules