Never mind that the US increased employment by 252,000 in December and unemployment sagged to 5.6%. The stock market moves to its own beat and doesn’t care much about the particulars in the ‘Jobs’ report or the media’s interpretations of its details.
US Stocks Decline as Wage Data Overshadows Job Gains
The market only cares about how those particulars affect the money creation that has kept it in operation since 2009. Here are two graphs from NFTRH 324…
On the Monetary Base view, Post-QE Base dropped, the S&P 500 popped (Santa seasonals)… then dropped… then the Base popped after the S&P 500 dropped and then the S&P 500 popped, then it dropped (to fill the gaps) and popped again; but today it dropped.
The Fed Funds view (ZIRP is into its 6th year now) simply shows box 1 (black) and box 2 (red). Box 1 wants to see box 2 remain very thin and horizontally rectangular while it continues to grow very tall in a vertically rectangular sort of way.
Economics 101, Wonderland style.
The worry in the ‘Jobs’ details was supposedly in wage stagnation. The mainstream thinking being that wage growth would spur organic economic expansion as all those consumers get out there and gobble up the economy’s products.
But it can be argued (by the second chart above that it is the lack of wage growth that can cause fretting by policy makers and an avoidance of any moves that would threaten box 2. Put another way, if wages start growing and the things that mainstream economists call inflation start to get out of hand the pressure would mount – amidst the strong economic backdrop – to get on that rate hike cycle and not fall behind the curve.
So today’s reaction by the stock market is not unexpected by this individual participant, because I was only looking for a gap-fill bounce with no need to read more into it than that. But the lack of wage growth is not a reason why the stock market should be going down. The jumpiness in yield spreads could be among them, however.
Guest Post by Tom McClellan
November 14, 2014
The data on the U.S. unemployment rate have been getting progressively better over recent months, either because of or in spite of the government’s efforts, depending on one’s viewpoint. And if this week’s chart is to be believed, then the data should continue to get better over the next several months.
Continue reading More Good News for Employment
‘Jobs’ came in at 248,000 vs. estimates of 220,000 and unemployment rate to 5.9%. Clicking the graphic yields the MarketWatch article.
The stock market is dutifully rising to test some breakdowns, as we noted to be likely in an update for subscribers yesterday. A key to what the market does at those test levels will be in how the market interprets the data’s effect on policy making which, as we well know, has been causal and supportive of the bull market every step of the way.
Theoretically, in a normal market we have reached escape velocity, where the economy’s fundamentals alone can carry the day. Notice I wrote ‘normal’? Is this a normal market?
The Fed is looking mighty suspect holding ZIRP for going on 6 years now. Then again, as long as there are no signs of inflation they have an implied free license to keep on keepin’ on. Interesting to say the least.
I have spent some time rummaging around the internet in light of yesterday’s hard ‘up’ in the stock market. There are intense debates going on about whether this is a ‘V’ shaped reversal as Richard Ross (a cool dude I have met previously) thinks, or a bounce prior to new lows.
My view? New lows in February prior to a bottom that could possibly be the launch pad to new highs out around mid-year. That is of course subject to the current bounce proving to be only that, a bounce.
I prefer to look under the hood more than to try to out guess nominal charts. One market leader, the BKX-SPX ratio, is still intact.
Another leader has been the barometer of the will to speculate as represented by the HYG (junk bonds) LQD (investment grade) ratio. This has made a mini breakdown.
What say we let the market decide what is up next? I have a sneaky suspicion that ‘jobs’ is going to come in okay, although the forecast as noted at MarketWatch seems to be a bit of a high bar at 190,000.
For now I am sticking with the bounce prior to a drop again in February and then rebound into mid-year scenario. Subject to incoming data of course, beginning in 5…4…3…2…
 Lame Payrolls +113,000 vs. expected +190,000 (prev. 74,000).