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Jobs Report Did Not Change Many Opinions

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    December 10, 2013

    It was an impressive reaction by the market to the jobs report yesterday, ending a 5-day losing streak, the Dow closing up 198 points.

    But was it a game-changer regarding short-term risk of a correction, or just the typical one- to three day reaction to surprises in the monthly jobs reports that are usually reversed over subsequent days as the market goes back to whatever was its focus prior to the report?


    Was it a game-changer for the Fed in its decision on when to begin withdrawing its stimulus support?

    As expressed in my weekend newspaper column, I don’t think so.

    There are still too many unanswered questions the Fed has to consider, including the continuing signs of problems in the housing industry, one of the two main driving forces of the economy in both directions (the other being the automobile industry).

    Was it a game-changer in the way of lessening my growing concern for 2014, and the need to be prepared for a substantial downdraft at some point, and opportunities for profits from both the upside and downside next year?

    I don’t think so.

    Other voices:

    Eugene Fama, economist, winner of 2013 Nobel Prize for economics: “I am not reassured at all. . . . . The jobs recovery has been awful. The only reason the unemployment rate dropped to 7 percent, which is still high by historical standards in the U.S., is that people gave up looking for jobs. . . . . I just don’t think we have come out of recession very well.”

    Mark Zandi, chief economist Moody’s Analytics: “It’s as good a jobs report as one could expect – strong gains in jobs, sharp decline in unemployment, increase in hours worked. It was unambiguously strong. . . . .  But I think the Fed waits until March for several reasons. One, they want to make sure this is a trend and not a temporary increase in growth. And the reason the Fed will be nervous about that is GDP is tracking below 2% for the 4th quarter. . . . And I think they will want to wait to see how the budget battles go in Washington, make sure lawmakers do not damage the economy again. And inflation is very low. . . . So they have room to wait.”

    Michael Gapen, Barclays: “We maintain our view that the Fed will not taper its purchases until next March. . . . The employment data does increase the likelihood that the Fed could taper its asset purchases in December, but we believe the committee will continue to view declines in the unemployment rate as overstating the amount of improvement in labor markets.”

    Credit Suisse, in a note to clients on outlook for 2014: “We do not expect market returns to rise in the event of stronger-than-expected economic activity, and think they will fall if activity weakens.”

    Comstock Partners: “The market continues to rise solely on the perception that the Fed’s easy money policy can hold stock prices up indefinitely.  We think that this line of thinking will prove to be no more durable than the dot-com bubble that peaked in early 2000 or the housing bubble that topped out in late 2007.  In both cases the market gave back a large proportion of the gains made during the bull market, and we believe that will prove to be the case this time as well.  When the vast majority of investors faithfully believe in a concept, no matter how faulty it may be, momentum takes over and the market goes up only because it’s been going up, ignoring all of the obvious warnings such as high valuations, over bullishness, decreasing earnings momentum and an underperforming economy.  When reality suddenly sets in, as it inevitably does, most investors are left holding the bag.”

    We’re still in the market’s favorable season and on an intermediate-term buy signal in our non-seasonal Market-Timing strategy, but the next sell signal could be as significant as those of 2000 and 2007.

    To read my weekend newspaper column click here:  Will The Real Economy Please Stand Up?

    Images: Flickr (licence attribution)

    About The Author – Sy Harding, Street Smart Report

    Sy Harding publishes the financial website Street Smart Report Online and a free daily Internet blog at Sy’s Free Blog. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!

    It includes our research and analysis on the economy and markets, and provides charts and buy and sell signals on the major market indexes, sectors, bonds, gold, individual stocks and etf’s, including short-sales and ‘inverse’ etf’s.

    It provides two model portfolios as guides. One is based on ourSeasonal Timing Strategy, one on our Market-Timing Strategy.

    In depth updates are provided every Wednesday, with interim ‘hotline’ updates every time we make a trade. An 8-page traditional newsletter Street Smart Report is provided on the website every 3 weeks, in pdf format for viewing or printing out.

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