Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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

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

By: Sy_Harding


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 - 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