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The bad news is winning

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by Peter Switzer

The big news is that the Dow Jones index finished down below 10,000 and you can blame a disappointing US jobs report, which President Barack Obama had inferred was going to be good and people believed him, but that was only part of the story.

The Dow lost 323 points of 3.2 per cent and is off about 11 per cent since April’s high, the S&P 500 is down around 12.5 per cent, and the Nasdaq is around 12 per cent lower.

In summary bad news and rumours are beating good news and fact but that’s just the phase the stock market is in right now.

Not only is the jobs report disappointing compared to expectations, but there were also rumours that the investment bank Societe Generale was having derivatives business problems and Hungary was the next country to be linked to the d-word for default, which again put the skids under the euro and strengthened the greenback.

Jobs situation

Not helping was the latest jobs report for May, which showed 431,000 non-farm jobs were created, which sounds good, but temporary Census workers made most of the contribution and only 41,000 came from the private sector.

Ironically the unemployment rate fell from 9.9 per cent to 9.7 per cent but it was the job figures that captured traders’ attention.

Jobs and housing remain a threat to a sustained US recovery, while manufacturing and company profits are beating expectations.

As an economist, I know jobs numbers can be very jumpy and unreliable but you can understand why a lot of US bosses don’t want to rush to pile on labour costs until they believe the recovery is a dead set goer.

To prove my point about how you can’t trust one month’s job figures, late last week one report from Indeed.com showed that job listings were up in all 12 industries the website follows. This is thought to be a good leading indicator, however the market was in the grip of fear and bad news — there was no time for rational analysis.

Double-dip bears emerge

Not surprisingly oil fell to US$71.51 a barrel but at least kept above the US$70-level.

We’re in a tricky situation where a number of technical levels are really being tested and there doesn’t seem to be a big positive on the near-term horizon that could beat all of this negativity.

This has brought the double-dip bears out of the woods, as per usual.

Outlook for this week

In the USA, there aren’t any blockbuster economic readings to excite the market this week. Mid-week there’s the Beige Book which snapshots how the economy is going and then on the last day of the week there are retail sales, consumer sentiment and business inventories. These are not big enough to make the market but if they show bad news they could help the breaking of the market we’re seeing now.

I think European news will be the big watch this week overseas and the resource tax will again be the big issue here. If the Government compromises at the right time when the market is positive again then our resource stocks could have a big bounce.

And we need a reason to bounce big time!

For advice you can trust, contact Switzer Financial Services.

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Published on: Monday, June 07, 2010