Weekly Recap & Outlook – 01.10.14

Tower Private Advisors

Below

  • Market yawns at payrolls surprise
  • Odds and ends

Capital Markets Recap

At 8:38 this morning the Wall Street Journal included this sentence in a news blast, “U.S. payrolls rose by 74,000 last month, the Labor Department said.” Yet, the S&P 500, shortly after the open, was down only a couple of points on a release shockingly wide of the mark. But the change from the previous close doesn’t tell the whole story. In fact, in after- and before-hours trading, S&P 500 futures traded higher by 9.6 points, and the market fell by 15.6 points on the payroll news. Still, the market closed 4.6 points higher than yesterday’s close.

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Here’s a look at markets on the week.

wro

If you’re like me, perhaps you wonder why gasoline prices go up so fast and down so slow. Well, wonder no longer. Just take a look at this chart of Unleaded Gasoline Futures. Clearly, that’s what they do, right? I mean, look at that two-cent spike on Thursday.

gas

Top Stories

  • China replaces U.S. as the world’s largest trading nation
  • Target says its breach now has affected up to 110 million consumers
  • Political or geo-political risk topped the list (36%) of things that are most likely to affect markets in 2014
  • The ECB’s president Mario Draghi said policy rates in Europe would stay low for a long time (hmm…haven’t we heard that somewhere else?)  He also said that it’s too early to conclude the financial crisis in Europe is over
  • If you think the investing deck’s stacked against you, it is, but you might position yourself better by investing in some Blackrock funds. There, at least, they’re stacking the deck in your favor. The asset manager agreed to end its practice of pestering Wall Street analysts for their ratings ahead of time. It’s only a problem because the Ivy League educated analyst–all of who were required to take some ethics course–knuckled under.

This Week

There was only one story that mattered this week–and it didn’t really, at least on the surface. That’s the monthly Nonfarm Payrolls report, which was released this morning. The consensus estimate was for 200,000 new jobs, which would have followed the 196,000 added last month. Instead, just 74,000 jobs were added, which was the lowest addition since mid-2011. Was there anything that could explain the huge miss? Maybe the weather, and yet economists didn’t adjust their estimates much, if at all, and presumably they knew about the weather, too. The fine folks at Strategas Research Partners said that the number of folks unable to be accounted for because of the weather was “92,000 above the 5 year average.” If we add that back on to the number of jobs reported we get to just 166,000. The report in which they discuss this report ends with this line, “the economy does not appear to entering into a sprint at the moment.”

Most of what I read from other sources was similar. Comments included the following:

  • It’s just one month
  • “Somewhere between puzlling and worrisome: that is how I would characterize this morning’s surprising employement report”
  • This won’t change the Fed’s plans
  • The most weather-related jobs affected since 1977
  • “We are not concerned that today’s payroll report challenges our forecast for improving growth in 2014″
  • Inconsistent with other economic data that shows strength

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The Unemployment Rate declined to 6.7%, but a major portion of the decline was the result of a further reduction in the labor force. As a reminder, the labor force is comprised of folks working and those willing to work. As a percentage of the working age population, that figure, the Labor Force Participation Rate is the lowest it’s been since March 1978. You can see that in the chart below.

lfpr

Next Week

While none of them reaches the level of importance of the payrolls report, there are a bunch coming out next week. They include the following.

  • NFIB Small Business Optimism
  • Producer Price Index
  • Consumer Price Index
  • Philly Fed index
  • NAHB Housing Market index
  • Housing Starts and Building Permit
  • Capacity Utilization and Industrial Production
  • Job Openings and Labor Turnover Survey

Graig P. Stettner, CFA, CMT
Chief Investment Officer
Tower Private Advisors

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