The financial press reported the depressing jobs report sparked the rally as this would force Congress to pass the stimulus package. I’m not sure about this one as the market understands what we’re getting doesn’t exactly inspire the equity investor. Besides, the Senate is still working to pass the thing and then it will move on to the House to be worked some more.
More likely, traders didn’t want to be out of the market, or short, just ahead of the Geithner announcement.
From a more fundamental aspect – unfortunately we don’t hear that much these days as everyone is focused on government’s response (which is exactly the problem) – longer-term investors may have stepped in simply as a result of the magnitude of job losses last month. We lost 598,000 payroll positions in January and this marks the third-straight month of darn-near 600k declines. Such outsized losses should not continue for much longer, and some of the buying may have been driven by this thought.
As we mentioned on Friday, it will take additional mistakes out of Washington to keep this level of job losses going. The trade fight some politicians, ignorant of history, seem to be sparking could certainly do it but we’re not there yet.
Financials led the market higher as concerns over bank nationalization eased. Technology and consumer discretionary shares were among the other strong relative performers.
Market Activity for February 6, 2009
The Jobs Report
Well, so much for that quirk in the seasonal adjustment I was expecting. The Labor Department reported payroll positions were slashed by 598,000 in January. Over the past 12 months 3.5 million jobs have been lost, with 70% occurring since September and 50% in the past three months. No other data set shows more clearly the degree to which things changed since the day Lehman went down – September 15.
Goods-producing industry job losses led the declines, shedding 319,000 positions in January – 111,000 construction jobs and a massive decline of 207,000 manufacturing positions.
Service-producing industries lost 279,000 jobs, although the degree of decline has eased relative to the previous two months – professional and business services led the industry, shedding 121,000.
Education and health services continue to buck the trend, adding 54,000 positions last month – this segment has not shown a month of decline during this period of labor-market malaise.
The unemployment rate jumped to 7.6% -- the highest since September 1992 -- from 7.2% in December. The Household Survey (separate from the payroll survey as it includes the self-employed) showed a decline of 1.239 million jobs last month. It is this survey the Bureau of Labor Statistics uses to calculate the unemployment rate.
On the bright side, hourly earnings continue to show remarkable resilience, up 0.3% last month and 3.9% over the past year. Real wages, as we touched on in Friday’s letter, have exploded to the upside as the plunge in energy costs drive inflation to zero.
The labor market continues to shed jobs at an alarming rate and the streak of monthly declines has extended to 13 months – although the vast majority of this damage occurred in the last five months. The credit event that occurred with the collapse of Lehman sent the equity markets plunging and business financing – especially for small businesses – into chaos. As a result, the consumer pulled back with stunning quickness as their savings (in stocks) plunged and businesses canceled spending plans as they saw the economic contraction that would ensue.
The focus should be set on returning confidence to the consumer, business and investor – anything less will be a failure.
Another Delay
Stock-index futures are lower today after the Senate delivered a bill Friday evening that is junk. This doesn’t surprise the street as Congress has signaled the direction for some time now, but confirms what’s being presented as stimulus is laden with entitlement spending and transfer payments – programs that can have a lasting affect on suppressing growth as it will be very difficult to take them away; those that try to make them temporary will be demonized.
Stocks are also trading lower this morning as the administration has delayed Geithner’s official announcement on their bank rescue plan until tomorrow. This is the second delay now, and one wonders what’s going on. They say they are focused on the stimulus plan today, but I don’t know how a 30-minute press conference limits focus on getting the spending spree passed. They’ve got it passed anyway; it just won’t be a bipartisan event.
On the bank rescue, if it’s even correct to call it that, word is Geithner will propose incentives to encourage private money to buy troubled assets. That means government guarantees protecting against a certain amount of losses will be their tool.
Geez, why don’t they just eliminate mark-to-market, since this is what’s exacerbating the problem. And you want incentives? Place a five-year moratorium on capital gains taxes related to these specific investments – that will bring bids in and the government won’t have to keep printing money to backstop losses. We are wasting so much time and money just to keep a flawed accounting standard in place it makes one wonder…I’ll refrain from writing what I’m thinking right now.
The Geithner plan is also expected to include the “bad bank” idea and more capital injections – it’s pretty clear the government is enjoying the increased control these injections bring.
In the meantime the market has to deal with more uncertainty. The administration should have learned from the previous occupants not to wave proposals in the market’s face only to delay or change plans. Stocks may just offer them another lesson today. We shall see.
Have a great day!
Brent Vondera, Senior Analyst
No comments:
Post a Comment