Wednesday, March 06, 2013

ADP Points To Strong Job Gains

The Dow hit an all-time high yesterday, although the S&P 500 remains about 35 points away and the Nasdaq is probably years away.  But the headlines sparked some interest, and I got questions from some friends who haven't asked about the markets in 10 years, lol.

It remains to be seen if folks continue to return to the market with all that cash that has been sitting on the sidelines.  Some strategists think that when recent bond fund purchases start to show losses on investor statements that the lure of equities will pull them in.  But bond yields are going to have to start moving up for that to happen, and the economy likely needs to improve more to support higher yields.

This morning the ADP Employment report showed the economy added 198,000 jobs in February, which was above expectations.  Sometimes a strong ADP report leads to a strong govt. payrolls report on Friday, but not always.  And to bring the unemployment rate down we probably need to see monthly jobs numbers in excess of +200k.

Asian markets were higher across the board overnight following the record setting Dow close.  Japan led the way with a 2.1% gain.  In Australia, the economy grew +0.6% in Q4, in-line with expectations.

European markets are also higher this morning.  The Eurozone Q4 GDP figure was reported at -0.6% as the country remains mired in a debt-ridden weak growth environment.  That could cause leaders to rethink some of the austerity measures that continue to choke off any prospect for growth.  An IMF official said Spain must remain on track for its reforms, but the country's budget minister said no new taxes will be taking place.

The dollar is higher today, and most commodities are lower.  Oil prices are down to $89.65, copper prices are lower, as are ag prices.  Gold and silver are bucking the weakness, with gold only slightly higher to $1580.

The 10-year yield is rising again, and is back above its 50-day average to 1.92%.  And the VIX is up 1.5% but still below the 15 level near 13.65.

Trading comment: The Dow headlines about making a new record high is likely to put a little pressure on portfolio managers who remain underinvested.  Those folks likely have to continue to chase stocks higher to keep up.  But the disciplined investor can wait for good buying opportunities, which always come.  The put/call ratio has been very high the last 2 days, despite the positive action in the market.  That leads us to believe the many investors remain skeptical of this advance and that keeps the 'wall of worry' high-- which from a contrarian perspective is a good thing.


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