Slowly but Surely for U.S Markets
As investors increasingly put aside fears of economic calamity and focused again on fundamentals, the Dow Jones Industrial Average broke through to its highest close since May 2008, back before the Lehman Brothers collapse and ensuing economic meltdown. The combination of strong job growth, a three-year low in unemployment, and other positive developments, propelled the Dow ahead 156.82 points, or 1.23%, on Friday. At this point, the blue-chip index would have to rise just 10% to reach its record close of 14164.53, hit Oct. 9, 2007.
The biggest economic news last week surrounded Friday’s Employment report from the Bureau of Labor Statistics (BLS), though the results are being heavily debated. According to the report, total nonfarm payroll employment rose by 243,000 in January, and the unemployment rate decreased to 8.3%. The report added “job growth was widespread in the private sector, with large employment gains in professional and business services, leisure and hospitality, and manufacturing.” Sounds good, right?
Skeptics argue the reason the employment numbers look so good is because 1.2 million Americans dropped out of the workforce in January; they gave up looking for work. In simple English, if less people are looking for work, it looks like less people need jobs. Also last week, the Congressional Budget Office released its projected employment outlook for the next few years, in which they predicted the unemployment rate will be at 8.9% during the last quarter of 2012 and rise to 9.2% for the last quarter of 2013. Those numbers aren’t so good. So what’s the real story? Frankly, it probably exists somewhere in the middle.
Employment reports, like most other economic reports, are based on estimates. Like a thermometer, these reports can be used to take the temperature of the recovery, not to diagnose it. They only tell us a little bit about one symptom. If we rely too much on one report, we set ourselves up for disappointment.
It is much more effective to look at trends. What trend are we seeing? To quote a recent commentary from First Trust, “Private sector jobs have increased for 23 consecutive months, total cash earnings are up 4.6% in the past year, and previous months’ data are being revised upwardly, not downwardly. The bottom-line is that the economy is getting better.”
Like a patient recovering from traumatic injuries, our economy is still going to have good days and bad days. It may not be completely well, but it is healing. Slowly, but surely.
ECONOMIC CALENDAR:
Tuesday: Ben Bernanke Speaks at 10:00 AM ET, Consumer Credit
Wednesday: EIA Petroleum Status Report
Thursday: BOE Announcement, ECB Announcement, Jobless Claims, Wholesale Trade
Friday: International Trade, Consumer Credit, Ben Bernanke Speaks at 12:30 PM ET, Treasury Budget
Data as of 2/3/2012 1-Week Since 1/1/2012 1-Year 5-Year 10-Year
Standard & Poor's 500 2.17% 6.94% 2.89% -1.43% 1.98%
DOW 1.59% 5.28% 6.63% 0.33% 2.98%
NASDAQ 3.16% 11.54% 5.51% 3.47% 5.20%
MSCI EAFE 2.69% 8.82% -8.55% -3.60% 3.44%
10-year Treasury Note (Yield Only) 1.90% N/A 3.54% 4.83% 5.03%
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized.
Sources: Yahoo! Finance, MSCI Barra. Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. N/A means not available.
HEADLINES:
The New York Giants defeated the New England Patriots at Super Bowl XLVI for the second time in the Super Bowl in recent years. New York managed to survive a valiant effort on a Hail Mary attempt from Tom Brady in the last seconds, and held on for a 21-17 win. As a long-time Giants fan, I may not have a voice for the remainder of the week!
Greek Prime Minister Lucas Papademos struck a tentative deal with political parties on austerity measures demanded by international creditors. They agreed in a five-hour meeting Sunday to make additional reductions this year equal to 1.5% of gross domestic product. With the country’s stability at stake, the accord marked another step forward.
The European Union's total government debt rose slightly to 82.2% of economic output in the third quarter of 2011, the EU's statistics agency said on Monday, lower than the United States but still a burden that could take decades to pay down.
New York Attorney General Eric Schneiderman sued banking’s Big Three – JP Morgan Chase, Bank of America, and Wells Fargo – on Friday in New York State Supreme Court over their use of an electronic mortgage database that played a key role in financing the nation’s historic housing bubble. "Our action demonstrates that there is one set of rules for all -- no matter how big or powerful the institution may be -- and that those rules will be enforced vigorously," said Schneiderman in a statement.
QUOTE OF THE WEEK:
"All our dreams can come true - if we have the courage to pursue them." – Walt Disney
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