Stocks are flat on the week, and flat on the year, and it’s hard to see what the equities market is telling us. But the so-called “safe haven” trades are starting to chirp (although, of course, that’s liable to change at a moment’s notice.)
We also explore Kristina Peterson’s WSJ story on Briargate Trading. You think you’d like to work two hours a day? These guys do.
What's got these guys all jazzed up, huh?
The stock market has been recording pretty strong gains so far in September, all the more notable since September is historically such a lousy month. The proverbial double-dip fears are receding – on the Street, at least (if you’re on that other street, Main Street, it doesn’t matter whether or not it’s called a double-dip. It’s lousy and it’s been lousy.)
Okay, so what’s doing it, right? That’s the question. Have the economic tea leaves shifted that significantly? We could write a 1,000-word post deconstructing the various data points, the ISM, the August jobs report, the weekly jobless claims, the housing numbers, the GDP report. But there’s not much point. We’ve been over that ground before. I think losing 54,000 jobs overall in August – the third consecutive losing month – is more significant than the 67,000 private sector jobs that were added. You agree or you don’t.
But make no mistake, the Street has seized on the “better-than-expected” data points to help it climb from the bottom of the trading range it was about to break through in August. But the numbers haven’t been good enough to take the market above the trading range, either (and we’re broadly calling this range between 1040 and 1130 on the S&P 500.)
Then there’s this notion floating around that the Republicans are definitely going to take back either one or both chambers of Congress in the mid-terms, and since the GOP is perceived as more business-friendly, that’s good for business and the stock market. That is definitely a second cause.
But, once again, we have to wonder if it’s the Fed again, trying to goose the wealth effect.
Slow, lazy climb
Bigger-than-expected declines in initial weekly jobless claims and July trade deficit carry stocks for a while today, with Dow Industrials threatening early to reach into triple digits on the upside.
It continues to be what Art Cashin calls a “low-volume levitation,” which nearly succumbed to evaporation as bulls showed signs of afternoon fatigue. US stocks manage modest gains, but still unable to produce an upside breakout to really demoralize bears.
Materials sector ends as the only one in the red; financials, health-care and telecom lead, but conviction still seems MIA. DJIA rises 28.23 to 10415.24, and Nasdaq Comp adds 7.33 to 2236.20. S&P 500 ends 5.31 higher at 1104.18.
Look for more aimless, wandering action tomorrow (stalking the euro), as the only notable data release is July wholesale trade and inventories.
Trade deficit numbers looked much better than everybody expected, and that may mean at least that imports won’t drag on 3Q GDP the way they dragged down 2Q economic growth.
Fed tries to put its best foot forward in the latest Beige Book report, noting “continued growth in national economic activity,” while still acknowledging “widespread signs of a deceleration” compared to preceding periods. It’s a forty-three page report, so in an attempt to cut to the chase and distill the key message, we took an admittedly unscientific but hopefully insightful shortcut.
We counted how many times the report mentioned the word “weak” or other derivation (weakness, weaker, weakening, etc), and compared it to other recent BB reports.
In this latest report, the bank used “weak” or other derivative 65 times. That compares to 53 times in the July report and 45 in June. Obviously an uptick in “weakness,” but down from 84 mentions in March, and 94 in July of last year. On the precipice of recession in November 2007, the Beige Book mentioned weak etc 61 times.
Conversely, the Fed mentioned the word “improve” or some other derivation 54 times in today’s report. That’s down from 68 in July and way down from 107 mentions in June.
It’s no deep-dive into the nitty gritty, folks, but seems suggestive of the economy’s direction, at least.
Also interesting to note, the Fed increased its use of the adverb “quite” for added emphasis to some of its observations, as follows:
Demand for commercial real estate remained quite weak but showed signs of stabilization in
some areas.Upward price pressures remained quite limited for most categories of final goods and services, despite higher prices for selected commodities such as grains and some industrial materials.
Most Districts reported little or no change from existing low levels of commercial and industrial lending, as businesses remained quite cautious about expansion plans.
A recent flurry of refinancing activity spurred increased demand for residential mortgages in the New York, Cleveland, Chicago, and Kansas City Districts, but new-purchase mortgage originations remained quite sluggish in general.
With builders holding off on new construction, inventories have gotten quite low,
though prices still seem to be drifting lower.
Think we’ve seen quite enough.
So now that the U.S. — apparently, at least judging by the market’s reactions last week — isn’t a concern anymore, the markets are turning once again to Europe. Funny how these things work, isn’t it?
US stocks rally again, extending equities’ winning streak, after August jobs report comes in better than feared.
DJIA jumps 128 (1.2%) to 10448, its fourth consecutive gain. Those gains, incidentally, almost totally wiped out August’s loss. S&P 500 rises 14 (1.3%) to 1105, surging sharply, but getting capped around the 100-day moving average. Nasdaq Comp gains 34 (1.5%) to 2234. NYSE volume at 3.5B shares traded is low, but that should be expected ahead of a the three-day Labor Day weekend.
It’s the best three-day showing to open a month since March 2009, a month that lives warmly in many a bull’s heart. Whether the rest of September will replicate March ‘09 remains to be seen, but traders are going to at least have a nice holiday weekend to savor it.
Still, stocks haven’t broken out of their trading range, yet. The risk trade got a big boost this week, with a few data points coming in better than expected. Whether that’s a blip or some kind of near-term bottom is the question. In all the euphoria, the stock market almost completely ignored this morning’s ISM services index, which showed a rather distressing slide and on which John has a separate post.
Don’t forget, Mouseketeers, there’s a big difference between better than expected and good. This morning’s jobs report was not good. It was better than expected. The stock market may not care about that difference, but you should.
ISM services index? That come out today?
Peculiar that the stock market today so easily dismissed a worse-than-expected August ISM non-manufacturing report.
Not a big surprise that ISM services weakness is overshadowed by better-than-expected payrolls report, but the complete disregard for this stinker seems a little odd.
After August ISM manufacturing’s upside surprise Wednesday, the Dow Industrials busted a 250-point move higher, with economists and other pundits quick to suggest the better-than-expected data should shelve any concerns about a double dip.
The fact that several regional manufacturing reports earlier in the month reported starkly different information was given little heed. “The contraction seen in some regional manufacturing surveys in August seems not to have been representative of the national manufacturing sector, as the ISM production index remains above-trend and the employment index was the highest since 1983,” Barclays Capital said this week.
Cut to today – the ISM services sector August gauge falls to 51.5 from 54.3, its lowest level since January and just a point and a half from slipping into contraction territory. The market flinched, juked and jived, but ultimately steadied and frolicked with the frisky euro again.
Gluskin Sheff’s David Rosenberg breaks down the jobs report for you:
The jobs report was uninspiring in the aggregate but the bright spots cannot be readily dismissed. First, the private payroll number came in at +67,000, which was above the consensus estimate of +40,000, not to mention the ADP print of -10,000. This, along with the upward headline revisions of 123,000 and the 0.3% MoM gain in the wage number has the bulls rather excited.
But there were many other parts of the nonfarm report that left much to be desired. Here’s an unlucky seven examples of softness beneath the surface:
1. Aggregate hours worked were flat.
2. All the employment gains were part-time — full-time employment, as per the Household Survey, plunged 254,000.
3. Those working part-time for “economic reasons” surged 331,000 — the biggest increase in six months.
4. While private payrolls were better than expected, 10,000 of that +67,000 tally reflected returning construction workers who had been on strike.
5. Manufacturing employment was down 27,000 and total goods producing jobs were flat — hardly signs of a robust economic backdrop.
6. The diffusion index for private payrolls actually fell to 53.0 from 56.7 in July — a seven-month low. It was 68.0 at the April high, which is consistent with an economy slowing down to stall-speed.
7. The labour market gap widened with the all-inclusive U6 unemployment rate rising to a four-month high of 16.7% from 16.5% in July. This is why the odds are stacked against a sustained acceleration in wages.
Wish they'd do that census thing every year.
Yes, yes, I know, the jobs report was better than expected, not as bad as feared, a glimmer of hope, a kernel of confidence, a slash of color in an otherwise drab picture.
I’ll tell you what, I was prepared to make a point on this morning’s News Hub, a good point. But I’ll admit, the numbers were better than expected, they surprised me, too, and that was the story, and well, you know we get only a few minutes up there, so this point I wanted to make got pushed aside in my mind and I never brought it up.
It’s this: don’t lose sight of the bottom line.
Look, a net 54,000 jobs were lost in August. Yes, I know, the private sector created 67,000 jobs. But the Census Bureau let go 114,000 workers, temps hired specifically for the decennial poll. Still, the economy on balance shed jobs, and as far as growth goes, and consumer spending, and all those things, does it matter if the job lost was a public one or a private one? A temporary one or a permanent one? It just means that somebody, well, 114,000 somebodies, was getting a paycheck and now isn’t.
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