Jobs gain 113,000 in January versus 190,000 expected. December revised up 1000 to 75,000. Unemployment rate 6.6% and the participation rate is 62.8%. Where is the good news? Why is the market moving higher? Because of the number of analyst that saw positive in the negative simply put. The two points made are first, the jobless rate fell again and second, the participation rate rose slightly. The combination was worthy of being positive about the job picture looking forward. Interest rates fell again on the news as the bond market liked the number. This is why you never buy or sell based on what you think will happen with economic data and the reaction. For me, the belief was a miss on the number and a negative reaction from stocks. I was half right, but completely wrong. Bottom line we head into the weekend with plenty to ponder and contemplate.
The news contradicted the move in the broad markets as the major indexes all gained nearly 1% on the day. The ripple effect was for the global markets to rise as well. The EAFE index was up 1% as well with a four day rally off the lows this week. Europe (IEV) rallied as well and pushed back near the $46.33 mark. The emerging markets (EEM) gained 0.7% and is making a move to fill the gap left on the move lower on January 23rd. China (FXI) was higher as well, but still doesn’t look overly healthy. Emerging market bonds (EMB) have rallied nicely as well off the low and offers some upside opportunities near term. I am still of the opinion as the US markets go, so go the global markets. Until there is supportive data for evaluation of the global markets independently of the US we go with the in tandem trade.
Bonds rallied as yields dropped slightly on the reaction to the jobs report. There is some idea/opinion the Fed will stop the stimulus cuts on the job data! That doesn’t seem likely, if you take into account the other larger opinions that the lower rate of unemployment in conjunction with the higher participation rate. are a positive for the economic picture. Who is right? Bonds are going with the Fed cutting as of today, but that is coupled with some worries about growth going forward. I am on the side of the continuing to cut, and if they can hiking rates in the third or fourth quarter versus deferring until 2014. All said, I still expect rates will rise this year, the Fed will cut and hopefully the economic picture will stabilize at 2-2.5% growth. But, as you know that is all prognostication and our approach will be to take it one day at a time and deal with what the market delivers.
Looking towards next week the key issue will now be… follow through on the bounce off the recent lows. 1793 is on the S&P 500 become a question on the upside. Can or will the buyers continue to push prices higher in light of all the worries going forward. No one has crystal ball and we all have our opinions of what we believe will happen, but the market will have to validate the belief if we are to take on the risk of owning stocks. Discipline, Focus, Targets, Stops and Risk Management are the keys to obtaining our objectives. See you on Monday and have a great weekend.