At first blush this morning’s headline data for the employment report sounded great – nearly 300,000 jobs created and a huge drop in the unemployment rate to 6.3%. However, those who follow these things closely will caution about a factor called the “labor force participation rate”. A funny thing has been happening since 2007 – the American workforce has been shrinking dramatically. Meanwhile there has been a huge surge in disability insurance and graduate school enrollment…. plus we are getting to the early phase of the baby boomer retirement era. All these are leading to a dramatic drop in the labor force – so as workers drop out of the labor force the unemployment rate also drops… but not for a great reason. Anyhow today’s initial reaction was positive and stocks surged at the open, but as the day wore on stocks sold off; in the end the S&P 500 fell 0.13% and the NASDAQ 0.09%.
According to the Bureau of Labor Statistics the U.S. economy added 288,000 jobs in April, driving the unemployment rate down to 6.3%. Analysts had been expecting 218,000 jobs and 6.6% unemployment. Below the headline both average wages earned and work-week duration were unchanged, but the participation rate fell to 62.8%; the total civilian labor force fell by 806,000. It’s the lowest participation since 1978, highlighting concerns that the economic recovery is largely a statistical game of smoke and mirrors.
With the indexes same issues we’ve had for a while now; the inability for the NASDAQ to make a new high. The S&P 500 is fine and dandy so you’d think soon this divergence will end and either the S&P 500 will sell off with the NASDAQ or a rally in momentum/biotech type stocks will help the NASDAQ catch up to the S&P 500.
Ten year treasuries fell below 2.60% which is where they have bottomed repeatedly; kind of strange action as the headline data is supposed to be good and treasury yields should rise in a positive environment. So the bond market seems to be suspicious of the data as well.
It is worth noting Apple (AAPL) here as it has held up after its surge post earnings/split announcement; it is forming a high level flag and if this holds it should lead to a new leg up in time.
Suncor (SU) a name in the energy space is set up similarly to Apple.
One sector to point out today was the hot hot hot utilities which finally took a hit from very overbought levels – here is the ETF (XLU). Let’s see if this is a short term needed dip (back to the 20 day moving average) or the start of a selloff in this group. If it’s a selloff, bulls will want to see money rotate back into more growth-y sectors.
Have a good weekend and we’ll see you back here Monday.