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Today’s Stocks & Topics: Trading IRAs, 403B Plan, Equity Index Annuities.
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The big news this week on the economic front was this morning’s jobs report but on Monday we had construction spending which was a fall of .6% for July, after being up .3% in June, and an ISM report of 49.9% down from 50% for the manufacturing sector and another ISM report for nonmanufacturing with a reading of 50.3% when expectations were for 49.3%. Neither number told us much. On Wednesday factory orders for July were ‘OK’, and yesterday revised productively for the second quarter rose sharply, much more than expected. However, the jobs report this morning was the big story of the week showing us a weak job market. It wasn’t a surprise with a loss of a little over 80,000 jobs when the expectation was for a loss of 75,000 but there was a revision for the previous two months of more jobs lost, and this pushed up the unemployment rate to 6.1%. This data is telling us that we are in a weak economy but not a shrinking one. The economy is actually growing, just not with any gusto.
The dollar continued to strengthen slightly and oil collapsed after Gustov missed the production zone in the Gulf. Oil prices continued to fall all week sitting at about $105 per barrel this morning. Oil no longer controls the action of the stock market, that link has dissolved.
The assumption the traders are making is that the world economy is slowing but they are not sure if that is going to translate into a recession. I don’t think so. The World Bank is projecting a 4% plus growth rate for the world which is less growth than a year ago but still strong growth. Inflation has been conquered, at least in the current cycle, as oil and all commodities have fallen. But just as importantly, productivity has dramatically picked up meaning more downward pressure on inflation. Obviously, employers are not hiring yet; they are getting more work done with existing workers. How are they doing that? Much of it is technology upgrades and new technology that makes work more efficient.
As we said September is a tough month and this week has already proved that observation. That does not mean it will be negative. In election years September has been mixed, but in most years it is a down month. So cash held on the sidelines is prudent. However, it is also the month to start teasing into the market, just be very careful. Buy after any large down stroke in the market.
The stock market has always rallied strongly from the depths of negativism. The question is, are we at that point? Almost, universally the news on our economy is bent in a fashion to be negative. The consumer ‘feels’ poor with big hits to the value of his home and a painful reduction in the value of his 401K or other stock market assets. No wonder the consumer is down. At the same time it’s harder to find a job. It certainly feels like the news is all bad.
However, it is not all bad. Exports are still strong, finally the consumer is getting a break at the gas pump and we will see food prices start to come down. Salaries year over year are up 3%. Outside of financials and housing the economy is growing.
In our portfolios we are holding a huge amount of cash and we are shorting the market in certain areas. We also have tight stops in to take us out, producing more cash if need be. We will start to feel better about investing closer to the Presidential election when one uncertainty will be removed. The stock market hates uncertainty and in two months, with the elections over, I think we are going to look back and say things are starting to improve. Inflation’s fall will be showing up in the statistics by then. The financial crisis will be clearer and housing will be further into its weakness. Slight improvement is already happening but it is being ignored at this time. That’s normal.
One final point, the stock market has ‘always’ started to rally before you see any economic recovery. So, it is our job to anticipate that recovery. In this cycle we may not have seen the bottom but we are getting close.
The market is very likely to be higher by year end than it is today. The ride may be rough over the next six weeks leading up to the election but there is so much pessimism that chances are good the stock market is at or near its bottom, but the economy is not.
I see the stock market being much higher in 2009 and over the next few years returning not only double digit returns but high double digit returns. It is the journey getting there that is tough. It is never truer than in today’s market that you buy when there are sellers and sell when there are buyers. We have sellers; it’s time to buy, slowly.
Today’s Stocks & Topics: Special Guest: Bill Tancer author of CLICK, (ADM) Archer Daniels Midland Company, (NYSE) NYSE Composite Index New, (PBW) PowerShares WilderHill Clean Energy Portfolio.
There has not been much in the way of economic news this week but that changed today. Today it was the ISM nonmanufacturing index which showed us a reading of 50.6% when expectations were for a reading of 49.3%. The manufacturing ISM report came in a couple days ago at 49.9%. A reading above 50% indicates an expanding economy and below 50% a shrinking economy. As you can see we are right at the mid point.
More importantly this morning we had a revision of productivity numbers for the second quarter. Originally reported productivity came in at an increase of 2.2%. That number was revised upward to 4.3%, much more than expected. Labor costs that were reported as an increase of 1.3% were revised to a fall of .5%. This revision puts a nail in the coffin of inflation. With oil and other commodities falling from their lofty peaks and productivity increasing, inflation will come down sharply.
Add to that the weak job market (with a new report out tomorrow for August) and inflation is not going to be a worry. That means the Fed is not likely to raise rates anytime soon, but at the same time it gives Bernanke freedom to move in any direction he feels is necessary.
Good Trading
Steve Peasley
Today’s Stocks & Topics: Stock Reports, Bond Funds, Fund Managers, (ICE) Intercontinentalexchange Inc., (SSW) Seaspan Corp.
Today’s Stocks & Topics: (FNM) Fannie Mae, (FRE) Freddie Mac, Stock Evaluation, (PRU) Prudential Finl Inc., Roth, Day Trader.
Gustav missed, at least it missed damaging the oil wells and refineries on the Gulf coast, although it did do some damage. But oil is the story for the markets and the price collapsed this morning by $8.00 per barrel. Now everyone is talking about when it will hit $100 per barrel not when it will hit $200 like a couple months ago.
As oil falls Americans will feel some financial relief as the holiday season approaches. Will the consumer come back? Yes, to some degree, but with continued trepidation over home prices and the job market remaining sluggish, to say nothing of the financial crisis. The recovery will be slow, but we ‘are’ on the path of recovery.
The dollar is gaining strength and that is going a long way in pushing the price of oil down and affecting other commodity prices, but it is not that the dollar is strong rather it is other currencies that are weak, especially the Euro. Our economy is a lot further along in fighting through the economic malaise that has affected the world so we will be the economy that leads the world out of this softness.
Good Trading
Today’s Stocks & Topics: Buy and Hold, Market Seasonal, After Hours Trading, On Balance Volume, Paying Off Your Mortgage, Penny Stocks, Mutual Funds, Where Can I Learn More?, Shorting Stocks, Commodities Brokers, Where to Invest?, Dividends, How Do I Found Good Stocks?
Today’s Stocks & Topics: The Stock Market, Sectors, (ATT) At&T Inc., College Savings Plans, (CCC) Calgon Carbon Corporation, (TIE) Titanium Metals Corp.
