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U.S. Labor Report – The Game Just Changed

04/06/2012

On Good Friday morning, April 6, one of my fears for continued capital market appreciation was realized. Similar to 2011, the just released U.S. Labor report delivered a resounding disappointment. I encourage all investors to read yesterday’s “S&P 500® Index Technical Formation” blog as it is now much more relevant.  
 
The game just changed in three ways:
 
•  Prior to the April 6 Labor report, I expected President Obama to easily secure a second term in the White House. The disappointing employment report has dramatically improved the chance for Mitt Romney, the Republican frontrunner, to defeat the current sitting president. Let the race begin, it’s now a dead heat.
 
•  The historic reallocation trade out of Treasuries into equities has been postponed.
 
•  The level of uncertainty surrounding U.S. monetary policy has been raised and will discourage participation in the capital markets.
 
Once again, the onus is on Corporate America to support the capital markets with continued surprisingly resilient earnings. Ironically enough, President Obama’s fate might just lie in the hands of Corporate America.   
 
Strategy:  My lone “overweight” for the capital markets right now is taxable fixed income.  
 
March U.S. Labor Report:
 
1.  Headline +120,000, well below the estimate for +205,000 and last month’s 240,000
2.  Private +121,000, well below the estimate for +215,000 and last month’s 233,000
3.  Unemployment rate falls to 8.2% from 8.3% last month
4.  Underemployment rate falls to 14.5% from 14.9% last month
5.  Retail employment fell 34,000, the biggest drop since October 2009
6. Participation rate fell to 63.8% from 63.9% last month
7.  Average work week fell to 34.5 hours from 34.6 last month
8.  Average weekly earnings fell to $806.96 from $807.56 last month 
 
 
 U.S. Private Sector Jobs, January 2011 to April 2012

Source: Bloomberg

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