Employment Picture Darkens: What Next?
Daily Profit

Syndication

News

  • I'm hosting an exclusive online video event, "Profiting from Crisis in Europe". Investors are scratching their heads trying to figure out how to make money in the markets with Europe's debt crisis seemingly expanding everyday. Go to http://www.100kportfolio.tv/video to find out more.

Normal 0 MicrosoftInternetExplorer4

Your Daily Profit

June 4, 2010

*****Employment Picture Darkens

*****What’s at Stake

*****How to Play Volatility

 

Fellow investor,

Investors are apparently not real happy that payrolls grew by only 431,000 in May. Nor are they pleased that the unemployment rate dropped to 9.7%.

Are investors being unfair? Are they seeing a glass that’s half empty?

No, not really. Nearly all of the new hiring in May was for census workers. In fact, 411,000 of the 431,000 jobs were essentially government handouts. The private sector only created 41,000 jobs in May, which was less than expected.

Economists were expecting payrolls to grow by a total of 536,000. This is a pretty big miss.

*****We’ve known that improving the unemployment picture would not be easy. Job growth will not be a straight line. There will be fits and starts. The jobless recovery after the 2001 recession was the same way.

Still, it’s a good idea to remain focused on the implications of the painfully slow recovery for employment.

Hiring at the current pace means interest rates will stay low. After all, the Fed’s favorite measure to fight real inflation is wage inflation. And we’re not likely to see wage inflation pick up while hiring is stagnant.

During the last rally off of the February lows, this might have been seen as good news. After all, that rally was all about pricing in economic recovery in a low interest rate environment.

But the focus has shifted from interest rates (which represent the environment in which a recovery can take hold) to actual signs that the economy is growing.

*****Now, for the bears, stagnant jobs growth means two things. One, corporate earnings will be impacted. And two, the federal deficit will grow due to added stimulus spending and lower tax receipts. 

And really, it’s corporate profits that are the biggest concern.

I’ve commented repeatedly how well companies have cut costs to meet lower demand. And we’ve also seen consumer spending growth find some equilibrium. But nature will only tolerate moments of stasis.

Over time, spending and profits are usually growing or shrinking. We’ve seen growth. So now that momentum seems to be slowing, it becomes easy to imagine a period where things start moving backward.

Of course that doesn’t mean it’s inevitable. Again, economic recovery and jobs growth will not be straight lines. But it’s clear that investor confidence has been rattled a bit. And that will lead to more volatility.

*****Corporate earnings season is winding down. Earnings growth was very good. It was also priced in after the rally from February. 

Up next will be the pre-announcement of 2Q earnings. Of course, there’s no block of time officially designated on the investment calendar where companies have to come out and say they will either make or miss earnings. But companies have learned that Wall Street analysts appreciate a head’s up, especially if earnings will miss expectations.

I expect investors will be on pins and needles over the next couple of weeks, worried that negative earnings pre-announcements will be made.

And I will admit that if there any significant earnings misses pre-announced that it’s likely that the stock market will start the next leg lower.  

*****I know one person who will be ready for more volatility. And he will also be able to help you make money from downside moves for stocks. I’m talking about TradeMaster Daily Stock Alerts Jason Cimpl

I know for a fact he’s already got some inverse ETF’s and stocks to short ready to go if the market heads lower. You can learn more HERE.

*****The Special Video Investment Conference, Profiting from Crisis in Europe airs tonight at 6:00 p.m. If you’re looking from profit opportunities from the European debt crisis, this is the event you’ve been waiting for. There are still a few seats available.

Click here to sign up for free.

Have a great weekend,

Ian Wyatt

Editor

Daily Profit

 

 





Posted 06-04-2010 10:54 AM by Ian Wyatt
Filed under: , ,
Related Articles and Posts