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December Unemployment Report

12/05/2010

Usually, in the minutes following a monthly Unemployment report, I quickly send out a blog with my commentary and market strategy.  For those of you that did not watch the Thursday evening December 2 Fast Money program, I apologize because you were unaware of my intention not present a blog early Friday morning.  Rather, as I stated on Thursday evening's show, I wanted to wait until 3:30pm on Friday before reacting.  I felt it was very important to allow the market to properly digest the report and watch how money was allocated throughout the day.

As the final bell has rung, closing-out the first week of December, my strategy is as follows - STAY THE COURSE! 

I know it's tough to "Stay the Course," but the path of least resistance continues to be:

  1. Continued reallocation from Treasuries (not a bubble burst though) into U.S. equities - particularly small caps and cyclicals
  2. Continued demand for natural resources, industrials, hydrocarbons
  3. Emerging market inflationary pressures fueling a rise in gold and soft commodities pricing
  4. An accommodative FOMC targeting "wealth creation"
  5. An extension for all income brackets of the Bush tax cuts

On to this report's low lights:

December Unemployment Report

  1. Overall employment rose by 39,000 jobs - well below estimates of +155,000
  2. The critical component of the report - Private Sector Jobs - significantly disappointed, rising only 50,000, well below the +175,000 estimate
  3. Jobless Rate rose from 9.6% to 9.8%
  4. The underemployment rate remained at 17.0%

COMMENTARY: 
 The report is a major disappointment for the labor market recovery

  • I believe the FOMC will use the weak labor report to underscore the importance of continuing to expand the size of its balance sheet
  • The recent dialogue suggesting the FOMC might pullback on QE2  is less likely for certain after this report
  • I also believe this report will advance the process to extend the Bush tax cuts, at least temporarily, for all income brackets
  • Finally, I do not believe this report will reverse the bullish fall 2010 capital markets' momentum

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.