“Cinderella story. Outta nowhere. A former greenskeeper…” Bill Murray as Carl Spackler in Caddy Shack, 1980

By David B. Armstrong, CFA | Mar 07, 2011 | Weekly Market Commentary

Be sure to see my U.S. News and World Report column from last Friday for my thoughts on the problem with the S&P 500 index found here.

In case you missed it, last Friday was the 61st anniversary of Disney’s Cinderella.  It was also the release of the jobs report, which showed that the labor market has continued to improve with the private sector adding 222,000 jobs in February – a huge step up from the poor number posted in January of 68,000. So while we are far from healed, the employment picture is getting better. Additionally, although GDP, the stock market and consumer spending are all doing well – in fact very well – we don’t think the Cinderella story is quite over yet.

We have seen a drop in the unemployment rate from 9.0% to 8.9% over the past month.  This appears to have occurred not only because the number of unemployed individuals dropped by 190,000, but also because the number of people within the labor force increased by 60,000. There are now 13.7m people unemployed (down 190,000) with a labor force of 153.2m (increased by 60,000). 13.7 divided by 153.2 is 8.94%.

The equity markets we track were all up last week. The Dow Jones Industrial Average (DJIA) gained .33% to finish at 12,169, the S&P 500 Index gained .10% to finish at 1,321 and the Nasdaq Composite Index gained .13% to finish at 2,785. The Russell 2000 index, which tracks the performance of small capitalization stocks, gained .37% to finish at 825.

The U.S. economy lost 8.75m jobs during the latest downturn and has only rebuilt 1.25m of those lost jobs. While that is sobering, 190,000 is the largest gain in jobs over the course of this recovery (excluding the report skewed by the temporary hiring of census workers – I’m not going to count that since it was an artificial bump back in early 2010.)

Here’s some simple analysis – job growth is going to be well received by the stock market. Stock market increases are good for consumer confidence. Consumer Discretionary and Technology sectors historically do well when consumer confidence increases, as do REITs. When those sectors do well, hiring typically further accelerates and paychecks are expected to go up.

High oil prices put a damper on things, for sure. We need to see if they stay this high or if things cool off in reaction to a potential resolution to the situations in the Middle East. Look for GDP forecasts to start getting cut if we see commodity and gas prices stay high.

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**Standard Compliance Disclosures

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 generally 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.

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David B. Armstrong, CFA

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Dave got into the industry when he discovered his passion for finance in his mid-20’s. He’s a combat veteran and served as an officer in the United States Marines Corps on both active duty and in the reserves, retiring at the rank of Lieutenant Colonel. While serving on active duty, Dave was unable to spend money on deployments, so he became a self-taught investor. Along with a few bucks cash as a bouncer, his investing performance grew to be good....

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