U.S. Jobs Report – Market Consequence
• Headline jobs added 103,000, ahead of the 60,000 estimate and last month’s zero jobs growth.
• Private jobs added 137,000, ahead of the 90,000 estimate and last month’s 17,000.
• Unemployment rate was unchanged at 9.1% (vs. estimate of 9.1%).
• Prior month’s headline jobs number was revised higher, from zero to 57,000 new jobs added.
• Prior month’s private jobs number was revised higher, from 17,000 to 42,000 new jobs added.
• Construction jobs rose 26,000, the largest monthly gain since February.
• Factory jobs fell 13,000, the largest monthly decline in 13 months.
• Service provider jobs rose 85,000, the largest gain in 5 months.
• Average hourly earnings rose 0.2% to $23.12, after last month’s -0.2% decline.
• Average weekly hours rose to 34.3 from 34.2.
Market consequence – It remains prudent to position defensively, expecting to assume more risk if corporate earnings beat the lowered expectations. In defiance of those calling for a market meltdown and the need to be positioned in cash, I view the market price action since Tuesday afternoon, October 4, as constructive. Both the S&P 500® Index (Fig 1.1) and the 10-year Treasury (Fig 1.2) traced out significant price reversals that provide a more constructive view of risk assets, and, more importantly, a well-defined point of reference to determine if my expectation is incorrect.
The market now enters the critical earnings period. Earnings estimates have been lowered over the past few weeks. I expect corporations to exceed those expectations but guide rather conservatively for the next quarter due to the acknowledged “crisis of confidence.” Overall, a “beat and caution” theme for the season will not be enough to send the S&P 500 Index on a significantly higher path of appreciation but will be enough to challenge last year’s close of 1257.64. Watch the relationship between equities and Treasuries as the leading indicator.
Fig 1.1 S&P 500 Index, 7/25/11-10/7/11
Fig 1.2 U.S. 10-Year Treasury, 8/25/11-10/7/11