MARKET WRAP – A WIN FOR THE BULLS
Quite the struggle today between bulls and bears. Ultimately, the bulls won out with the S&P 500 finishing 0.5% higher on the day and 1.5% higher for the week. Daily Futures has the action from all markets:
U.S. Economy – Jobless Rate Improved
The U.S. Labor Department said that the unemployment rate improved from 10.2% to 10.0%, much better than expected. Non-farm payrolls were down 11,000, a much smaller decline than expected. The March 2011 eurodollars fell .195 to 98.275 as today’s report weakened the argument to keep the federal funds rate near zero.
In addition to November’s good news, job losses for October were revised from -190,000 to -111,000. For September, job losses were revised from -219,000 to -139,000. The March U.S. dollar index jumped up 1.295 to 76.29, the highest close in a month.
The U.S. Commerce Department said that factory orders were up .6% in October, better than expected.
Overall, commodity markets were steady to lower after today’s news. Better employment numbers are good for future demand, but the higher dollar is somewhat bearish for commodities.
Grains and Cotton
The USDA said that China bought 232,000 tons of U.S. soybeans. January soybeans were down 4 cents at $10.43.
Livestock
Australia exported 70,360 tons of beef in November, down 17% from a year ago and the worst November since 1997, due to the expensive Australian dollar. February cattle ended up .30 at 83.20.
After the close, the USDA estimated this week’s beef production at 494.5 million pounds, up 1.9% from a year ago. Pork production was estimated at 461.3 million pounds, down 4.3% from a year ago. February hogs closed up 1.45 at 66.75, helped by better wholesale pork prices.
Lumber
Today’s decline in the unemployment rate should be good news for the home industry, but will mortgage rates stay low? January lumber finished down $4.00 at $224.50.
Cocoa
Leaders of opposing factions in the Ivory Coast agreed to hold a national election by March of 2010, but it is not yet clear who will be eligible to vote. March cocoa was down $12 at $3,376.
Orange juice
Central Florida has been dry lately, but is receiving heavy rain today with more chances tomorrow and next week. January orange juice ended down .0015 at $1.2335.
Metals
February gold dropped $48.80 to $1,169.50 as today’s positive jobs report weakened the case for keeping interest rates near zero. March silver fell 60.8 cents to $18.52.
Energies
January crude oil closed down .99 at $75.47, pressured by the effects of today’s higher dollar in spite of the positive economic news.
Currencies
Statistics Canada said that the unemployment rate improved from 8.6% to 8.5% in November, better than expected. Employment increased by 79,000 in November, also much better than expected. The March Canadian dollar closed down .51 at 94.40.
I found it most interesting that the dollar strength, drop in gold and oil prices was not really met with any serious weakness in equities. I expected the market to end the day at about breakeven to yesterday or slightly down.
Aggregate weekly hours are now where they were in November 1997 and November 2003 (near the bottom of the previous recession). Aggregate work hours are the same as 12 years ago.
The S&P 500 was at 955 about this time in 1997 (inflation adjusted that would be about 1,285. It was at 1055 at about this time in 2003 (CPI adjusted about 1,240). The outlook is clearly worse now than at both those time and based on most historical measures the market was overvalued in both 1997 and 2003, but interest rates were also higher in both cases.
Looks like a run up to 1,180 or so for year-end is not out of the question. The wait for the market to see fair value again might be a long one. Next downturn October 2012? In 2007, a market collapse like the aftermath of the tech bubble seemed impossible to most people. I bet it takes about 4 years to lull everyone into complacency again for the next crash. Eventually forecloses (both residential and commericial) will drag down the banks and credit markets again, but provisioning for losses with not happen so quickly going forward as it did in 2007-2008.
Rob,
I’m surprised at the strength of the transports. It does seem the market wants to go higher. The public will now see a stronger dollar, higher markets, improved unemployment, global growth being raised every other day, then decide it may be time to dip a toe in -particularly if a deeper pullback materializes. I thought TPC said too he may look to go long for the next earnings season. With the holidays right around the corner I just can’t see the market selling off right now. And when does Bernanke’s second term get approved? I can see the market rallying on that too. Mr. Easy Money is what the bulls want.
From a technical perspective many indexes seem to be very toppish now.