9/10/12
Stocks rallied modestly on Friday, despite a weaker than expected jobs report. The Dow gained 14-points - following up on Thursday big gains.
[TABLE="width: 88%, align: center"]
[TR]
[TD="width: 241"]
[TD="align: center"] Daily TSP Funds Return[TABLE="width: 160"]
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[TD="align: right"] G-Fund:[/TD]
[TD="align: right"] 0.0029%[/TD]
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[TD="align: right"] F-fund:[/TD]
[TD="align: right"] 0.08%[/TD]
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[TD="align: right"] C-fund:[/TD]
[TD="align: right"] 0.41%[/TD]
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[TD="align: right"] S-fund:[/TD]
[TD="align: right"] 0.59%[/TD]
[/TR]
[TR]
[TD="align: right"] I-fund:[/TD]
[TD="align: right"] 1.35%[/TD]
[/TR]
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[TABLE="width: 80%, align: center"]
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[TD="align: right"] [/TD]
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If you were hibernating last week, the jobs report said there were 96,000 jobs created in August, well short of the 125,000 that was expected. The unemployment rate dropped from 8.3% to 8.1%, which sounds good, but it was a result of 368,000 more Americans leaving the labor force. The June and July job numbers were revised down another 20,000 jobs.
No matter how you slice it, this was not a good report - which may be good for stocks.
"Goldman Sachs’ chief U.S. economist, Jan Hatzius, reiterated his prediction that the Fed will announce the start of a third round of quantitative easing (QE3) next week. In a note to clients, Hatzius wrote that “We now anticipate that the FOMC will announce a return to unsterilized asset purchases (QE3), mainly agency mortgage-backed securities but potentially including Treasury securities, at its September 12-13 FOMC meeting. We previously forecasted QE3 in December or early 2013. We continue to expect a lengthening of the FOMC’s forward guidance for the first hike in the funds rate from ‘late 2014’ to mid-2015 or beyond.”
"With regard to the specifics of QE3, Hatzius’ “base case” is for “an open-ended asset purchase program of around $50 billion per month, with an end date that is not given in advance but made dependent on progress in the economic recovery.”
Source: http://www.goldalert.com
So this is clearly a case of - bad news is good news, but will we see a "buy the rumor, sell the news" reaction if QE3 does get announced? Clearly quantitative easing should be a catalyst for the market. At least it was for QE1 and QE2.
The S&P 500 broke to new multi-year highs, hitting levels not seen since 2000. But this move above resistance makes the index quite extended and the only thing that can probably sustain the rally is a QE3 announcement this week.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The prospects of QE3 sent the dollar down again, which of course helps the price of anything traded in dollars, and as was the case on Friday, stocks remained buoyant despite the weak employment data.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The yield on the 10-year Treasury note filled the open gap near 1.6%, then rallied back up and may be on a mission to fill the gap up near 1.8%. Should that happen, we would see bond prices and the F-fund pull back.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Here's a price chart of the 30-year Bond and it could be telling us that bonds are topping. Bonds have been in a bull market for a long time so predicting an end to that would be a tough call, but perhaps some intermediate-term weakness in bonds is due - at least this chart would indicate such.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Here is a look at sentimenTrader.com's compilation of indicators that are hitting extreme readings. None of their indicators are extremely bullish, while 21% are in extremely bearish territory. This will happen when the indices are extended to the upside.
Chart provided courtesy of www.sentimentrader.com
An argument can be made that with the strong possibility of QE3 coming and, with the election getting closer and closer, the indicators can be overlooked because of unusual circumstances and we should just go with the flow of stocks wanting to go higher. But it seems like whenever I think, "It's different this time", it actually isn't.
That said, keeping something, some percentage of assets, in stocks at at time like this isn't a bad idea at all. But keeping some powder dry in case there is a pullback would also be wise.
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
Posted daily at TSP Talk Market Commentary
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