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July U.S. Jobs Report

08/05/2011

The July U.S. Jobs report was released the morning of August 5.  Leading up to this day, the S&P 500® Index had endured four days of intensive selling pressure, taking the Index down almost 7%. The D.C. debt debate "follies" obliterated investor confidence, initiating the need for "risk off" during this extremely inopportune summer session time frame.

Multiple observers suggest this is a replay of the 2008 Lehman capital markets free fall. I say that is not so. Rather, the rate of decline is being exaggerated by a lack of market liquidity.

The culmination of financial regulatory reform, increased algorithmic trading, and the normally slow summer sessions are all problematic conditions accelerating the decline. Hedge funds are taking far less market risk as are the trading desks of investment banks. High frequency trading is now able to gain more control of intraday price trends as bids evaporate.

Over the next few days, stabilizing the rate of market decline will be priority #1. Technicians will point toward the critical "box, or 50% to 62% retracement zone. That zone is 1172 to 1210 and should provide long-term price support.

More importantly, the appetite hedge funds and investment banks to assume more risk will also stabilize the decline. Given the significant decline and extremely oversold conditions, I expect vacations to be suspended, market participants to return, and risk assumption to increase.

A closer look at the July U.S. Jobs report

  • Headline increase of 117,000 jobs was well ahead of estimates 50,000 to 75,000
  • Private sector jobs increased 154,000, ahead of the estimate range of 90,000 to115,000
  • Jobless rate fell from 9.2% to 9.1%
  • Prior month's headline increase of 18,000 was revised higher to 46,000
  • Prior month's private sector job increase of 57,000 was revised higher to 80,000
  • Underemployment rate fell to 16.1% from 16.2%
  • Average hourly earnings rose $0.10 to $23.13
  • Average work week held at 34.3 hours

S&P 500 Index Retracement Levels From 9/1/10 Low to 5/2/11 High



Source: Bloomberg
 

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