The jobs numbers prove that the severe winter weather was not as severe to the economy as economists thought but they also prove that the Economy is continuing to grow albeit not as robustly as from prior recessions. Still though the jobs numbers have some good data init this morning that continue to point to higher valuations for stocks. February’s gain was moved to 197,000 which was near the 200,000 mark which as regular readers of FullyInformed.com know is much closer to a robust economy. In prior recessions the US employment recovery often hit 250,000 a month which means a million jobs a quarter. March’s number came in at 192,000 which is decent but still shows the effects of the financial crisis and recession were the worst since the Great Depression. It also shows how important the financial community is to the overall health of the economy.
Pre-Recession Employment
For the first time private employment, which means no government jobs, surpassed the pre-recession peak amd shows that finally after almost 5 and a half years the economy is starting to hum again. There are signs that the non-participation rate may be starting to change as more people seek employment opportunities. February’s numbers also showed that Americans worked longer hours but saw no pay increases. It is pay increases that will help stoke the Fed to raise interest rates as pay increases are a part of the core inflation watched by the Fed so investors need to keep an eye out for pay raises.
The Fed
This also means the Fed will more than likely continue to reduce Quantitative Easing and will be on track to raise interest rates perhaps sometime in 2015. In Canada the Bank of Canada had indicated last year that they would be keeping interest rates lows until probably 2015. That gives stocks still this year and perhaps part of next year to continue to be the place to invest.
Market Direction Intraday to 11:30
The market direction this morning shortly after 11:00 shows first the enthusiasm of investors with the employment numbers and then by around 10:30 after putting in a triple top just shy of 1898, the realization that this means Quantitative Easing will continue to be tapered. It also means interest rates are still on tap to be raised at some point in the future.
Market Direction Morning April 4 2014
Second Catalyst
The market direction will remain choppy now as we head into the second catalyst for stocks, the upcoming quarterly earnings. They must be decent to keep stocks at the present lofty levels. Investor enthusiasm can only do so much for stocks. For stocks to stay up and continue to rise we need increased revenue. In general we need to see slightly better than 10% earnings growth for the year from the companies in the S&P on average. That will bring the Price To Earnings Multiple down to historic norms and keep stocks moving ahead.
Outlook Into The Afternoon
Don’t fear the dips at this time. Instead they are opportunities to look for new trade opportunities in my opinion. Then when the dip turns back to a move higher look to lock in the profits by closing the trade.
2013 made a lot of investors complacent to what a real stock market is like. 2014 is bringing reality back to a lot of investors but remember that until the numbers such as the Weekly Initial Unemployment Insurance Claims, interest rates, higher price to earnings and price to cash flow move too high, the bull market remains with investors but it will stay choppy.
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