Wednesday, May 8, 2013

April Jobs Report Fuels the Rally

Since the April jobs report has been given credit for fueling the run in the market that started last Friday (and I agree with that interpretation), I thought it might be a good idea to review some data.

You may remember that MarketWatch wrote “…there was a dark side to the report: …In April, companies hired 165,000 more workers, but they cut everyone’s hours (on average) by 12 minutes”.   That cut-in-hours-worked has had many of the internet “extremists” suggesting that the Jobs report was “totally bogus”, but not everyone.

I found this curious.  Art Cashin, Director of Floor Operations for UBS on the NYSE, put a positive spin on the drop in hours worked in the recent employment report in a CNBC interview.  Here’s what Art had to say: 
“I was impressed that the average work week actually dropped a little bit…and that may hint that they have been working everybody to death on overtime…and backed off the overtime and started to hire people and that’s where those numbers are coming from.”

I thought this was important so I checked the Bureau of Labor Statistics data.  The BLS reported that the Total Private average hours worked per week in April was 34.4 hours.  That makes Art Cashin’s comment a bit confusing.  If the average is already less than 40-hours worked, on average, overtime isn’t being worked so a cut in hours worked is bad news.  Art would have a good argument if overtime was worked in areas where hiring occurred.  Hiring occurred in restaurants and bars, temporary services, retailers and health care.  Those were not areas where overtime was being worked.  Thus, the MarketWatch characterization of it being the “dark side” of the report was probably more correct than Art’s rosy interpretation. 

Art’s positive take was on the morning the report came out, so perhaps he had not really looked into the numbers.  In any event, one wonders if investors actually read this stuff – maybe the pros are simply planning to pump this market higher so they can pocket a few more coins before they take it down and leave the sheep without any wool.  Oh, sorry, I don’t mean to sound like another conspiracy freak.

There are liars, damned liars, and statistics.  Perhaps I am one of those?  It’s always best to check for yourself, but I think I got it right.  BLS data at…

"This is a classic 'hold-steady' report -- enough job growth to keep the unemployment rate stable but not much more," said Heidi Shierholz, an economist with the Economic Policy Institute. "In good times, this would be fine, but at a time like this, it represents an ongoing disaster."  Full story at…

LEI (Conference Board, April 18, 2013)
“The Conference Board Leading Economic Index® (LEI) for the U.S. declined 0.1 percent in March to 94.7 (2004 = 100), following a 0.5 percent increase in February, and a 0.5 percent increase in January. [April data will be released in about 2-weeks)

Says Ataman Ozyildirim, economist at The Conference Board: “After three consecutive gains, the U.S. LEI dipped slightly in March, with equally balanced strengths and weaknesses among its components. The leading indicator still points to a continuing but slow growth environment. Weakness in consumer expectations and housing permits was offset by the positive interest rate spread and other financial components. Meanwhile, the coincident economic index, a measure of current conditions, is down since December due to a large decline in personal income.”

Says Ken Goldstein, economist at The Conference Board: “Data for March reflect an economy that has lost some steam. In addition to headwinds from government spending cuts, the private sector economy may struggle to maintain its momentum. The biggest challenge remains weak demand, due to nervous consumer sentiment and slow income growth.”  Full press release at…

Interesting... Just yesterday we had economists suggesting that the economy was picking up and a recommendation (from a talking head) to buy cyclical stocks.  With such slow growth, we still have a lot of disagreement between economists and stock market pundits as well. 

The market is up 14% this year as of yesterday’s close.  I have only one question: Are the gains justified by the economy?  I suspect the answer is: only if you think the economy is going to significantly improve in the future.

Wednesday, the S&P 500 was up 0.4% to 1,633 (rounded), another new high for the S&P 500.   Looking at the chart, the S&P 500 looks very close to parabolic up to me. (That would indicate the end is near for this rally, at least for a while, but who knows?)

VIX was also down a bit over 1% to 12.66.       

As reported by the WSJ, the Dow has not had “…a 3-day losing streak in 87-days, the longest such streak since 1958.”  By extension…this is the best economy since 1958?  Or…the Earnings outlook for US stocks is the best since 1958?  Or…the world’s economies are the best since 1958?  Or…make one up – this is fun!   

Wednesday, the overall NTSM analysis was again HOLD at the close. 

Its components follow: SENTIMENT is Sell due to its extreme bullish level of 64%-bulls as of Tuesday’s close.  The VOLUME indicator (a variant of on-balance-volume) is positive.  PRICE and VIX are neutral.       

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  My reasoning may be found at…(although that probably looks pretty lame by now.)
The NTSM system sold at 1575 on 16 April.  (This is just another reminder that I should follow the NTSM analysis and not act emotionally – I am under-performing my own system by about 2%!)

I have no problems leaving 20% or 30% invested.  If the market is cut in half (worst case) I’d only lose 10%-15% of my investments.  It also hedges the bet if I am wrong since I will have some invested if the market goes up.  No system is perfect.