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What Does it Mean?

August 6, 2012 – 5:15 pm

The jobs report last Friday signaled a relief rally that is likely not going to have legs. Though 163,000 new jobs for July certainly was a pleasant increase from the 80,000 or so produced the month before it did nothing to stop the unemployment rate moving up a tick to 8.3% from 8.2%.

So why the big move in stock prices and so far this morning a follow through? It might have more to do with the jobs report. While not being good, it was weak enough to ensure the Fed’s eventual intervention with QE3. Barring any further missteps from Europe (an unlikely event), and weaker news coming from China (a possibility), then maybe the market will continue its struggle higher given that the Fed would likely step in with easier money. There certainly is no fear of sparking inflation and actually there is a threat of deflation, something no one wants to see, which gives the Fed plenty of freedom to do whatever it wants to do with monetary policy.

So maybe the market will struggle higher. However, a much more probable outcome is another correction before summer’s end or into fall, but only that: a correction, not a return to bear market territory. With earnings season rapidly closing and back to school shopping on tap, and with another month’s worth of economic numbers the picture of our weakening economy demonstrated over the past several months may start to change.

Will that change be for the better or for the worse, or will the economy continue to show a slow struggle forward with bouts of uncertainty? I think the last result is likely.

Good Trading
Steve Peasley

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