Friends,
The unemployment number was just released this morning and the more things change, the more they stay the same. Yes, we did create a few private sector jobs, but the overall job loss was again disturbing, and a 9.6% unemployment rate will continue to weigh on the psyche of main street America. How about 2.35% on a ten-year Treasury Bond? How about 1.10% on a five-year? How about 0.35% on a two-year note? The bond market is certainly acknowledging the weak economy and pricing in more Federal Reserve action. This morning’s number almost certainly will force the Fed to proceed with asset purchases (quantitative easing), the only question that remains is – how much?
Equity investors (those who are still around) seem content to deploy money into this market, assuming that the Fed’s backstop (again, begun back in December of 2008) will continue to provide a floor for stock prices. We have taken a peek at 11,000 on the Dow a couple of times this week and that seems to be the market’s destination. On a technical basis, we are watching to see if 1150 on the S&P 500 can hold as a new support level. From there, we may be able to build some strength into the end of the year, given earnings season goes reasonably well and there are no surprises in November’s election.
Interestingly, equity investors seem confident that the Fed’s action will eventually work and the economy will respond. On the other hand, fixed income investors are betting that things are going to remain slow, at best, and are willing to commit new money to bonds at all-time low yields. Both these stances can work together int he short run, but over time one will prove to be correct and one will not. We do have an opinion on that, and our clients will be receiving our 4th Quarter Outlook in the mail today or tomorrow, describing our strategy for the next few months. If you are not a client of ours and would like a copy of our report, don’t hesitate to let us know.
Let’s watch and see if investors are emboldened by the Fed’s likely quantitative easing implementation int he coming weeks. Technically, we are in some important areas and it will be interesting to see if we can get through the resistance levels that are right in front of us. As earnings season has begun, we may see daily changes in sentiment as companies report their numbers and give their outlook for the future. There sure is a lot going on, and we will try to report to you as often as we can over the next several weeks.
Have a nice weekend everyone and enjoy the great weather.
