Interfund Transfer 6/02 for 6/03/05

[tsptalk]

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I don't know how much further the market will go, but I will lighten up on stock funds a little this morning. I'm making an interfund transfer to 25% G, 50% C and 25% S fund.

It could be thatwe haven't seen the top, but it could get tougher.

 

[tsptalk]

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Three days after a large surprise in the jobs report of 50,000 jobs, up or down, the S&P 500 was higher only 5 out of 18 times. Its average return was minus 0.5%. Markets don’t like surprises because they create uncertainty.

Ten days after a negative surprise of 50K jobs or more, the S&P was higher 55% of the time. Ten days after a positive surprise of 50K or more, it was lower 58% of the time.

[align=left]Ninety days after a large negative surprise, the S&P showed an average return of +5.1%. Ninety days after a large positive surprise, its average return was 1.7%.

The correlation between surprises in the jobs number and 90-day returns in the S&P 500 has been -.32. This means that the more positive the surprise, the more negative the performance in the S&P and vice-versa. Given the sample size, this is significant. [/align]

 

[tsptalk]

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This weak report could cause acouple day pullback but according to the stats above, that could set up a buying opportunity. Something to think about.

 

[Mike]

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It also rallied the bond market, as I thought it would. :^

I'm seriously considering dumping my remaining equity position and wait for the pullback. Economic data is deteriorating, the herd is extremely bullish, and the smart money folks are very bearish. Bad sentiment + declining fundamentals = market drop.

Due to the run-up over the past month, I'll go out on a tiny limb and guess that this will be part of the 45% thatare negative 10 days after a bad report. An average gain of ~5% between now and my birthday wouldn't be too bad, though.

Ok, I've convinced myself... dumping the equities. 40 G 60 F.

 

[Birchtree]

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Mike,

Can I purchase your equity position at a reasonable discount? I think the bigger risk is being out of C and S funds, not being in fully invested. If you average the jobs numbers for the last 2 months - you get 176K - just about right. Goldilocks.

Wayne Angel predicts perhaps one more .25 hike and then a pause. Others think they will pause in June and watch the bond market for future direction.

I notice a lot of fellow participants heading for the G fund. I like that type of emotional maneuver - eventually they will be back. It is going to be a long month and the market will continue to move forward and disappoint those waiting to get on a lower prices. I know I sound like a TA guy in reverse, I don't mean to sound negative but this is classic bull market deception. It is so cozy in the shelter.

 

[Mike]

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Remember, the market is using the data to reach a conclusion that looks forward.

We have:

Declining manufacturing growth - almost to the point where it is completely flat.
Rising weekly newunemployment claims - they jumped 25k this week.
Monthly jobs growth that fell from nearly 300k in April to less than 100k this month.
Strengthening dollar - near 7 month highs against the Euro - this will hurt exports.
High oil prices - they continue to persist in the $50-55 range.

Long-term, I think we go up (3 month S&P data averages a 5% gain after a negative jobs surprise like this), but in the short term, we are going to pull back. Between the recent economic data coming in below expectationsand the sentiment being so bullish in "the herd" and bearish in the "smart money", I'd say we're due.

I'm just hopeful the damage done today isn't *too bad*. I'm mostly protected already, at least, since I pulled 60% off the table earlier this week.