Gains From Jobs May Not Be Easy To Come By

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With the looming jobs report for February we find ourselves at an inflection point. The optimist would point to a swift end to the pain of hundreds of thousands of job losses, just seen a year ago, and an unemployment rate under 10%. The pessimist would say net job creation is a big negative and that January was a bottom in the unemployment rate at 9.7%, and will start to head higher. Further, that rate is really not indicative of the true unemployed in America, which is more like a 20% rate. I’m sure the truth lies somewhere in between. The market reaction to the jobs report this time around will be one to watch. This week we saw a big decline in consumer confidence, confirmed by some regional reports of sluggishness. Already analysts have turned tail and expanded the amount of job losses to expect next Friday, from -20K to as much as -100K. What if we see a much bigger number? Recently bad news has not been taken easily by the markets. To be sure, the snag in the economy has been job growth, or lack thereof. The $64,000 question is when will there be robust growth, since the decline for years was so precipitous. The stock market may already be reflecting a better jobs market, but the data are just not in alignment with that thinking. A stall in growth and turn lower will raise the stakes for the economy and present a scenario of double-dip inflation. The recent GDP results for Q4 2009 represent a massive re-stocking of inventories, about 65% of the 5.9% number was attributed to it. That’s not all bad, however you cannot keep replenishing when the inventory is not moving. If final demand is not there the coming quarters are going to be a challenge, this Q1 2010 practically being a layup, for last year the quarter was a disaster.

Market Volatility is Sanguine

I’ve found over the past several months the market volatility is telling the temperature of trader emotions. The reaction of news items such as a fed move, earnings or the jobs report is predicted by the amount of fear built into the market. The market is sanguine and comfortable about taking risk right now, not worried about a poor jobs report, Greece, credit, politics or anything bank-related. Should this be so? I don’t argue with the market, I accept it. However, the outlier situations, black swan-events if you will, have been documented recently and the market has taken notice. Quick pops in the VIX are used as buying opportunities to pile back in, but now the markets are back up to stiff resistance. If the VIX is showing little or no fear, then everyone is a bull, right? If that’s true, who’s left to buy? Right now emotions are in a complacent state, and that’s dangerous if the market is not discounting the news. To buy this market here is putting a great deal at risk for little reward until we see some more upside, breaking through barriers that have not been penetrated of late. Wait for a trend to develop, currently there is nothing but alot of churning. If the SPX 500 can breakout over 1116 on volume or break down below 1080 on the same high volume, there is some room for BIG rewards.