Job losses- marginally bad news for all, but it was worse for the double dip bears.

By David B. Armstrong, CFA | Aug 10, 2010 | Weekly Market Commentary

August completed its first week with the markets finishing higher despite the jobs report on Friday. This news seems to confirm our thought that the economy has hit a soft patch.  While the economic data was not particularly strong– especially the jobs report– it was not weak enough for anyone to declare that a double dip recession is upon us – a notion that we reject as well (see last week’s email).

Despite the economic reports, the Dow Jones Industrial Average gained 1.79% for the week to finish at 10,654, the S&P 500 Index gained 1.82% to finish at 1,122 and the Nasdaq Composite Index gained 1.5 % to finish at 2,288.  The Russell 2000, which measures smaller capitalization stocks, was flat.

No data from last week has signaled to us that we are in anything other than a soft patch – we do not believe that we are in nor are we headed towards a double dip recession.  While the unemployment rate remained at 9.5% and nonfarm payrolls fell by 131,000, we think that the market on Friday was encouraged by the fact that private employers added 71,000 jobs.  While it was less than expected, let’s face it, it’s still positive.  Additionally, wages were up and companies had their workers working longer hours rather than hiring.  That’s a good sign because companies can’t keep working their people for longer and longer hours indefinitely.

We have had several questions about our, “being in forward or being in reverse” comment from last week, so we wanted to more fully explain how we look at that.  We look at the monthly Non-Manufacturing ISM Report on Business (referred to as the NMI index) and the Manufacturing ISM Report on Business (PMI index) both published by the Institute for Supply Management to provide us with insight about the economy. When these indices are above 50, they signal economic expansion and when they are below 50, they signal economic contraction.  The most recent reading of the NMI is at 54.3 and for the PMI it is at 55.  Those readings are lower than they were earlier in the year (hence the “slow-down”) but not below 50 (which would signal a change from forward to reverse).

So – in the world of being in ‘forward’ or being in ‘reverse’ we are definitely in ‘forward.’  The thing to remember about moving forward is that the speed will always fluctuate.  We will speed up and slow down, but we are still moving forward.  We see no risk of a double-dip and while we may have slowed down, that’s not such a crazy thing to happen after we come out of the trough we were in during the Q1 & Q2 of 2009.  Having a good plan and sticking to it rather than trying to haphazardly time or trade around a market will be a major key in investors limiting, if not completely removing, the angst around the current situation and its impact on their personal situation.

Please call us with questions or if we can help.

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.  All performance referenced is historical and is no guarantee of future results.  All indices are unmanaged and cannot be invested into directly.  Stock investing involves risk including loss of principal.  The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries, and widely held by individuals and institutional investors. The Standard & Poor’s 500 Stock Index (S&P 500) is an unmanaged capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ Composite Index measures all domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. The Russell 2000 Small Stock Index is an unmanaged index generall representative of the 2000 smallest companies in the Russell 3000 Index.  The Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values.