Overview and Observation:
The surprisingly weak jobs report last week continues to resonate throughout the marketplace giving rise to renewed concerns over the U.S. economic condition. As stated before in my various commentaries, there is no such thing as a "jobless recovery." We rely on "employed consumers" to advance our economy and also as stated before, "an unemployed consumer does not consume."
How much longer can an economy progress when the products that companies manufacture… are not consumed? A buildup of inventories occurs until which time as additional layoffs become necessary. The weekly first time unemployment figure of more than 325,000 seems to be mostly ignored but clearly an unemployed worker applying for benefits has in fact lost a job.
The term "jobs created" is a misnomer because you cannot "create" a job without "creating" a new industry. What we can do, however, is "recover" jobs that were lost to foreign countries because of a bloated and inappropriate U.S. tax base. To those that concern themselves with corporations making too much money, consider that those companies are responsible for the "hiring" and to punish the companies with burdensome taxes and mandates is tantamount to "punishing" the labor force. A society based on "welfare" and ever increasing government controls cannot survive. As a great man once said, "Government is not the solution to our problem; government is the problem." Now for some actual information…
The 30-year Treasury bond (CBOT:ZBH14) closed Friday at 131 and 14/32nds up 11/32nds tied once again to economic data and influenced this past week by the poor jobs report. The Treasury market continues to react to data that could result in further tapering of the economic stimulus program, or various projections of economic growth. The University of Michigan consumer sentiment index fell to a preliminary reading of 80.4 for January against 82.5 for December. Economists were expecting a reading of 84. New housing construction declined by 9.8% in December after an increase in November. Cold weather could have prompted the number so we must await a return to climate "regularity" before forming an opinion going forward. For now we suggest the bond market will remain in a trading range periodically affected by new data or comments from the Federal Reserve.
The Dow Jones Industrial Average (CBOT:DJH14) closed Friday at 16,458.56, up 41.55 tied to earnings gains for American Express and Visa Inc. and for the week managed a gain of 0.1%. The S&P 500 (CME:SPH14) closed at 1,838.70, down 7.19 and for the week lost 0.2%. The Nasdaq composite closed at 4,197.58, down 21.11, but for the week gained 0.5%. Earnings being reported and estimates are currently moving the equity markets. We continue to expect disappointing economic growth numbers and consumer sentiment, an important market barometer, as reported by the University of Michigan/Thomson Reuters index fell to 80.4 in early January from 82.5 in December with analyst expectations around 84. Disappointing earnings results from Intel Corporation and General Electric weighed on the indexes. We once again strongly suggest holders of large equity positions to implement strategic risk strategies to avoid our expectation of a 10%-15% retracement. Last years’ 28%-plus equity market gains in the face of what we saw as a stagnant or even deteriorating economic condition are an anomaly and should "correct" early this year. We are prepared with contingency programs.