Thursday, May 09, 2013

Is The Labor Market Really Improving?

The market is a bit lower in early trading, but the S&P 500 has been up for 5 straight days so a down day here would not be surprising at all.

In economic news, weekly jobless claims fell to 323,000 last week.  That marks the lowest claims level since January 2008, a pretty surprising statistic.  What is unclear is that although the unemployment rate has been falling recently, a big driver as been the declining labor force participation rate.  This begs the question, if the economy continues to improve will more people re-enter the labor force and slow the decline in the unemployment rate?

Overnight, Asian markets were modestly lower.  China's CPI rose 2.4% which was a bit higher than expected.  The Chinese press expects the govt. to enact plans aimed at curbing overcapacity.  The Bank of Korea cut rates 25 basis points to 2.50%.  Australia's unemployment rate fell to 5.5%.

In Europe, markets are also lower today.  The Bank of England kept its interest rates and asset purchase plans unchanged.  The ECB released its Monthly Report which pointed to downside risks and weak global demand as factors that could delay the recovery.

The dollar is higher today, which is weighing on most commodities.  Gold prices are weaker near $1465.  Oil prices are down slightly to $95.94.  Silver and copper prices are also lower, but ag prices are higher.

The 10-year yield is getting a boost today back to the 1.80% level.  It's overhead 50-day average resides near 1.82%.

The volatility index is +4% higher today to a still low overall level of 13.15.

Trading comment: Market commentators continue to call for a market correction, but they have been calling for one all the way up.  It continues to make more sense to take advantage of stocks and ETFs breaking out to new highs or showing good relative strength.  If a correction comes, it will be an opportunity to put more cash to work in a quicker fashion, or to shift some allocations out of fixed income into equities.  But sitting on the sidelines waiting for the "correction" has been a bit more costly this time around, at least in terms of opportunity costs.


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