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Great jobs numbers bad for stocks

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by Peter Switzer

The Yanks saw a great jobs number just ahead of the presidential election on Cup Day — first Tuesday in November — but in what would have normal intelligent people scratching their heads, stocks dived! The whole problem for stocks, which I think will only be short-term, is all about sugar hits.

Yep, that white poison that gets all of us excited — especially kids — and can help us pile on the fat has been driving stocks up. That ‘sugar’ in reality is QE3 (quantitative easing three) and its other related policies to pump up the US money supply to keep interest rates low.

However, if the sweetener that took away the bitterness of a post-GFC, economic and markets world has a shorter use-by date than many expected, then stocks could fall.

Wall Street on Friday

Helping this happen will be a higher greenback, which is a sign of strength, but it hurts US companies that export — Google, IBM, Apple, etc. — which have been arguably some of America’s best performers over the troubled QE-something period.

For the record, the Dow lost 139.46 points or 1.05 per cent to 13,093.16 and the S&P 500 dropped 13.39 points or 0.94 per cent to 1414.2. It’s worth pointing out that the S&P index remained above 1410, which is said to be an important level showing that the sell-off didn’t have massive commitment.

Why stocks fell

I know it seems perverse, but markets can be driven by what would seem crazy thoughts, but sometimes there’s a weird logic about it.

Here’s some of the thinking that could have helped stocks dive:

Better economy means less QE and the last round was nicknamed QE Forever!
A good jobs number is good for Barack Obama.
Or if Mitt Romney wins the election, will that also mean a less compassionate Fed and will Ben Bernanke’s role as chairman be renewed when his term expires on 31 January, 2014?
A better economy means the Yanks are closer to a rate rise, which is not good for stocks.
Then there’s the fiscal cliff that lies ahead and if these job number help Obama, this could mean the fiscal cliff negotiations could be more dramatic.
The $50 billion price tag on the Hurricane Sandy clean up could even be in the mix at a time when the US Government is credit-extended.

On a positive note

I could go on, but I just wanted to show the kinds of negativity that can come out of a positive piece of news. By the way, there was more good economic news, apart from the 171,000 jobs created in October against expectations of 125,000, leaving unemployment a little higher at 7.9 per cent. Factory orders rose 4.8 per cent in September and this was the best result since March 2011!

The “if” word

I have been arguing a pullback was on the cards and all of the factors mentioned above could facilitate it, but I believe an improving US economy will eventually be seen as something better, more real and more long lasting than anything a QE program can generate.

Stock markets don’t travel in straight lines because it reflects the money decisions of a whole bunch of different thinking investors and traders.

If the Yanks can get more good job numbers, it will underpin a massive rise of stock prices. I’m still using the “if” word, however, which means there’s still some waiting time before unbridled euphoria returns to stocks but you still can make money as we have seen this year.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Monday, November 05, 2012

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