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Why the stock market is better than footy

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by Peter Switzer

Wall Street’s failure to get too stressed out about a hardly impressive jobs report has to be seen a positive sign. In many ways, there were parallels with what we often see in footy matches.

Anyone who watched the NRL St. George vs. Roosters game might say, sure the Roosters lost but given everything they did wrong, especially penalties, they did well to go down by only a few points.

Worse than expected

The stock market reaction to 131,000 jobs lost from nonfarm payrolls in July left the unemployment rate at 9.5 per cent. This compares to an expected loss of 65,000 jobs and a jobless rate of 9.6 per cent. So the job loss was worse than expected.

But the reality is that these job losses link to temporary Census workers losing their casual, one-off jobs. The number to focus on is the move in private sector jobs, which was up 71,000 against an expectation of 90,000.

So it was worse than expected even with the Census workers taken out.

More gloom

Another worrying economic sign was the reading for ‘consumer credit outstanding’. This number shrank to levels much lower than economists expected and confirms that consumers are not spending.

Adding to the gloom, Goldman Sachs lowered its economic growth forecasts for the US in 2011 to 1.9 per cent from 2.5 per cent. It’s bad news but it is slow-down news, not double-dip news.

On a positive note

Against this, 75 per cent of US companies that have reported have beaten expectations and while the revenue side hasn’t impressed, the profit story has been positive.

This again will be a testing week for the bulls despite a 1.8 per cent gain last week for the Dow Jones and the S&P 500 index.

This week the US central bank considers interest rates and how to stimulate their economy and the economic releases will include inflation, retail sales and consumer sentiment. The latter two readings should be closely watched by investors.

The week ahead

On the local front, today we get housing finance and ANZ job ads. On Tuesday, the NAB business survey followed by consumer confidence on Wednesday.

The biggie locally for this week are our jobs numbers on Thursday and if these head lower they will bring out warnings of pending interest rate rises, which will not help the cause of Julia Gillard.

The current unemployment rate is 5.1 per cent and, of course, if it rises it could also be bad for Labor but it will bring into question the Coalition’s desire to start paying back debt too soon.

Who said money and economics are boring? Considering some of the football games I have seen over the past few weeks, including the Wallabies and a lot of Swans games (until this weekend), I reckon the stock market is far more interesting than footy. It’s definitely more dramatic.

For advice you can trust, contact Switzer Financial Services.

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, August 09, 2010