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Not All About Employment... But Close - Week Ended 6/4/10
posted 06.07.2010 at 10:27 a.m. by steve
Despite a holiday-shortened trading week due to the Memorial Day holiday for US markets on Monday, the week again felt long for investors as stocks finished down -2.25% on the S&P 500. Throughout the week, markets seemed to be moving past the recent turmoil and cautious optimism was present heading into the employment report Friday. Comments from President Obama Wednesday afternoon alluded to strong job growth and helped produce one of the biggest daily gains of 2010. And, Thursday continued the prior day advance, helping to cement the first two consecutive daily advances for the S&P 500 in over a month! but, the much anticipated employment report on Friday came and went falling dramatically short expectations. Outside of temporary Census hiring, the private sector added just 41,000 jobs during the month of May; that figure was well short of economist expectations for 150,000 to 250,000 new jobs ex-Census. Add to the disappointment news from the country of Hungary, who essentially said that it is likely headed for a Greek-style debt crisis, and it was not surprising to see the markets give back all of the recent gains plus some (losing nearly -3.5% on Friday).
Despite the week finishing on such a negative tone, not all news was bad. Instead, the recent data remains more consistent with a soft-patch in the economic recovery, or a bump in the road as opposed to a double-dip recession. Of key importance last week was that credit spreads and Libor rates (a gauge of counterparty trust between banks) held steady, curbing their recent trend of deterioration. While the Labor Department report on Friday was less than inspiring, other job-related data was more encouraging. Some leading indicators of employment continue to point toward additional hiring in the months ahead. Given recent events, from European debt issues to oil spills to terrorist actions, we suspect volatility will continue and the markets will struggle to find direction. Add to those events a relatively light week of economic news, and expect that investors will be reading closely any data that helps further understanding on the direction of employment, consumer sentiment and international economic activity. Key among the releases will be the international trade data due on Thursday and retail sales on Friday. Overreactions to good or bad news in the short term are likely as investor emotion and fear is back.