By C. Jonathan Camarda
CMT®, CPWA®, CFP®, ChFC®, CLU®, CFS®, BCM®
The most recent jobs data for August came in at 173k versus the expectations of economists of 213K—both of which are lower than July’s 215k. The question is if the 173k is high enough to give the Federal Reserve the pliability to implement the much “heralded” September rate hike. Moreover, the unemployment rate fell to 5.1% versus the projected 5.2%, thus providing conflicting data i.e. the “yellow” light for the Fed. Of course, uncertainty is not the market’s friend. Investors covet clarity. However, the non-farm payroll numbers have painted a murkier picture. Thus, you have seen the market react to this. The bottom line is that a very strong number would have made a hike, all but a matter of fact. But that 173k number raises concerns of whether the economic foundation is as rock solid as once believed.
European Central Bank President, Mario Draghi, revealed a revised stimulus. The disappointing non-farm payroll report has, in part, offset this. In addition to this, August is usually the “docile” month before the stormy fall season. This, of course, wasn’t the case this year. We are now heading into a historically volatile time of year that follows Labor Day. The economic data beyond the aforementioned non-farms payroll data looked “OK”. Weekly jobless claims were 282K, which were above the estimated 275k, and last week’s claims of August were 270K—both were well below the dreaded 300K level (a positive sign for the labor markets).
We continue to monitor China very closely. The recent interest rate cuts and the Quantitative Easing certainty on the horizon have temporarily stabilized the equity markets there (Shanghai Index). It appears whatever “turn” China takes at this juncture, the globe will follow suit. The Euro situation with ECB’s Mario Draghi showing his “stimulus cards” has at least added some “calm” to the recent backdrop of “chaos”.
The markets have suffered some real technical damage over the recent few weeks. The Dow, S&P 500, and the Russell 2000 have all seen the dreaded “death cross” where their 50-day moving average has dropped below the 200-day moving average. While this certainly should cause some concern, the main thing is that these indices do not remain at these levels for an extended period of time. Right now, that is a veritable “coin flip” as the corrective waves have changed the long-term uptrend into a short-term corrective trend. If the markets can find support and bounce with some conviction (heavy volume), it could regain the uptrend. If not, we may be looking at lower levels from here. Stay tuned . . .