Friday, October 02, 2009

Will The Economy Ever Create Job Growth?

Economists missed the jobs estimates by a wide margin this morning. The nonfarm payrolls report showed the economy shed -263,000 jobs in September, far more than the consensus of -175k jobs.

This is a disappointing number for investors. We need to see the number of job losses continuing to decline. That plays into stronger consumer confidence, and strong personal spending, which is the biggest component in the GDP calculations (consumer spending accounts for nearly 70% of GDP).

On the flip side, I have said in the past that this recovery is not going to be smooth sailing. Rather, the economic data coming in will be lumpy at best. At times, it will look like the path to recovery is at our doorstep, while at other times it will appear we have taken a step back. I think today's jobs report falls into the latter category.

The news pushed the S&P 500 lower this morning, all the way down to its 50-day average near the 1020 level. It is the first test of the 50-day average since July. It also marks more than a -5% correction from its highs last week, and I am not in the camp who says we have to have a 10% correction here. So while there may be some additional downside, my guess is we have seen the worst of this decline already.

Bearish sentiment is already on the rise, quickly, as the put/call ratios have been very elevated the last few days. I would expect to see similar dislocations in the investor surveys. So my thesis is that the "stair-step" market is still alive, and I will look to use this pullback as another buying opportunity.

The dollar is moving lower now, pushing oil back to $70 and gold back above the $1000 level; the 10-year yield is hovering near 3.20% after a dip this morning all the way down to 3.10%; and the VIX is now down a touch after briefly topping the 29.50 level, an elevated level for this index.

Trading comment: Yesterday I added to a few stocks, including BIDU and GS. I aslo think STEC is very attractive at these levels, even thought the technicals are broken. In etf land, I've added a little to financials (XLF) and tech (XLK).



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