Despite the Dow losing 8-points, stocks managed some solid gains of Friday after the weak jobs report was announced. The I-fund led the way helped by weakness in the dollar, and bonds and the F-fund rallied on the news as yields fell sharply.
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As you may have seen, the jobs report came in adding 74,000 non-farm payroll jobs in December, well below the 197,000 estimated. The unemployment rate dropped sharply to 6.7%, but that was due to yet another drop on the labor force participation rate, which peaked in 2000 and has been free-falling since the financial crisis in 2008.
Incredibly, there are now 92,000,000 Americans not in the labor force. (There are only 350,000,000 Americans.)
Why stocks rallied on this news, I'm not 100% sure. We keep hearing that the economy is improving but is it smoke and mirrors? You would think that the decrease in the unemployment rate would be a good sign for the economy, but as pointed out above, the drop is not due to people getting jobs, but rather because they are leaving the workforce and are not being counted as unemployed anymore.
The Fed had unemployment rate a target of a 6.5% for their signal to start pulling back on quantitative easing, and we're on the brink of hitting that number so it is surprising that investors are not concerned by this. As you might expect after a weak economic report, bonds rallied as yields fell, but stocks refuse to yield - pardon the pun.
I'm afraid one day we will wake up and reality will hit the market like a ton of bricks. As I have been pointing out recently, the 1929 market comparison is still in play, and well... tomorrow is January 14. I don't know if we'll crash like that, but I would say there may be a little irrational exuberance in the stock market right now.
Chart provided courtesy of www.mcoscillator.com, analysis by TSP Talk
The S&P 500 (SPY) didn't rally all that much but it overcame early losses and we have seen a series of strong closes so investors continue to show that they are willing to buy weakness.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The weak jobs report sent bond yields down sharply as the 10-year Treasury has fallen from a high of 3% earlier this month, down to 2.86%. Trends have been broken and the 50-day EMAs are in play now with the longer-term yields falling below it.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Bonds prices and the F-fund benefitted from the drop in yields and we may be seeing the start of a new trend in the bond market. There were large gaps created by the rally on Friday so we could see some backing and filling, and the question will be whether the old resistance lines will act as support on any pullback.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
As we've mentioned many times, bond market sentiment has been so bearish that some kind of relief rally was expected, despite the poor chart patterns. Now the charts look better so perhaps buying the F-fund on any pullbacks would outperform the G-fund.
Read more in today's TSP Talk Plus Report. We post more charts and indicators, plus discuss the Sentiment Survey Results and its System. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
Posted daily at TSP Talk Market Commentary
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
[TABLE="width: 79%, align: center"]
[TR]
[TD]
[TD="align: center"]Daily TSP Funds Return
[TR]
[TD="align: right"]More returns [/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
As you may have seen, the jobs report came in adding 74,000 non-farm payroll jobs in December, well below the 197,000 estimated. The unemployment rate dropped sharply to 6.7%, but that was due to yet another drop on the labor force participation rate, which peaked in 2000 and has been free-falling since the financial crisis in 2008.
Incredibly, there are now 92,000,000 Americans not in the labor force. (There are only 350,000,000 Americans.)
Why stocks rallied on this news, I'm not 100% sure. We keep hearing that the economy is improving but is it smoke and mirrors? You would think that the decrease in the unemployment rate would be a good sign for the economy, but as pointed out above, the drop is not due to people getting jobs, but rather because they are leaving the workforce and are not being counted as unemployed anymore.
The Fed had unemployment rate a target of a 6.5% for their signal to start pulling back on quantitative easing, and we're on the brink of hitting that number so it is surprising that investors are not concerned by this. As you might expect after a weak economic report, bonds rallied as yields fell, but stocks refuse to yield - pardon the pun.
I'm afraid one day we will wake up and reality will hit the market like a ton of bricks. As I have been pointing out recently, the 1929 market comparison is still in play, and well... tomorrow is January 14. I don't know if we'll crash like that, but I would say there may be a little irrational exuberance in the stock market right now.
Chart provided courtesy of www.mcoscillator.com, analysis by TSP Talk
The S&P 500 (SPY) didn't rally all that much but it overcame early losses and we have seen a series of strong closes so investors continue to show that they are willing to buy weakness.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The weak jobs report sent bond yields down sharply as the 10-year Treasury has fallen from a high of 3% earlier this month, down to 2.86%. Trends have been broken and the 50-day EMAs are in play now with the longer-term yields falling below it.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Bonds prices and the F-fund benefitted from the drop in yields and we may be seeing the start of a new trend in the bond market. There were large gaps created by the rally on Friday so we could see some backing and filling, and the question will be whether the old resistance lines will act as support on any pullback.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
As we've mentioned many times, bond market sentiment has been so bearish that some kind of relief rally was expected, despite the poor chart patterns. Now the charts look better so perhaps buying the F-fund on any pullbacks would outperform the G-fund.
Read more in today's TSP Talk Plus Report. We post more charts and indicators, plus discuss the Sentiment Survey Results and its System. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
Posted daily at TSP Talk Market Commentary
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
. Not likely.
