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Earnings $eason!


I’m not sure that the start of earnings season is going to change the fact that it seems like investors still hate stocks.  Over the past month, bond funds have suffered huge outflows totaling more than $60 billion.  According to Investment Company Institute data, last week may have been the worst of the past four weeks with $28 billion vanishing from bond funds.  The unfortunate part is that none of it has found its way to U.S. stocks since domestic equity funds have also suffered outflows in each of the past four weeks.

Second quarter (2Q) earnings season begins today after the close with Alcoa announcing their numbers.  It should be interesting to see what they say about the auto industry.  There was some good news out last week from auto makers and as we have said here several times over the past few years, nothing impacts the economy more than housing and cars!  On that note, both Ford and GM announced that their June sales outperformed estimates and we LOVE to see more pickup trucks being sold.  Most Ford F-150 pickup trucks are sold to businesses.  And most businesses only buy new trucks when business is good…because they need to haul more stuff around!

Here’s a recap of how the market did last week.

Weekly Market Returns 7-8-13

Employment Report

The Employment Report (otherwise called “non-farm payrolls”) showed the creation of 195,000 jobs which is way better than the 161,000 that most people were expecting. Also key was the fact that the two previous months were revised higher. That means the initial reports were actually LOWER than reality.  For instance, the initial April report that came in at 149,000 new jobs was revised up an actual number of 199,000 and May’s initial report of 175,000 was revised up to 195,000.  Not bad.  The chart below shows the last three month’s revised numbers and the black line is the unemployment rate which held steady at 7.6%.

Nonfarm Payrolls and the Unemployment Rate

*Temporary surge in payrolls tied to temporary hiring for 2010 census; followed up by 4 months of declines tied to unwinding of temporary hiring by the government.

The bad news is that the “U6 Unemployment Rate” that no one ever talks about jumped from 13.8% to 14.3%.  This report includes unemployed people who have stopped working (called discouraged workers) and people who are working part-time but want to work full-time. See next chart.

U6 Unemployment Rate


This better-than-expected jobs report caused the bond market to sell off (and send rates skyrocketing) because expectations grew that the Fed might soon reduce their bond purchase program called Quantitative Easing or “QE”. See more thoughts on QE here.  In response to the report, the benchmark 10-year Treasury yield jumped to 2.73%, which is the highest level since July of 2011.

Steep Climb S&P 500 and 10-Year Treasury Yield

A few parting thoughts here.

  1. Re-read the paragraph about U6 Unemployment Rate.  If anyone thinks the Fed is going to start tapering when that rate is 14.3%, well, I think they are nuts.  Oh, and if you play with the Federal Reserve Bank of Atlanta’s Job Calculator you will see that given the current rate in which we are creating jobs, we will not have 6% unemployment until sometime in 2015 and we won’t see 4% until 2017…so using all of my fingers, I come up with 10 years between the start of the last recession and unemployment at 4%.  Anyone know how long it took the job market to recover after the Great Depression?  Hint – it’s not 10 years.
  2. Has anyone else noticed that even though the yield on the 10-year Treasury has been going to the moon (you refinanced your mortgage, right?) that stocks are still doing well?
  3. Despite the gains in housing and autos there are still some signs that the ecnomy is growing but soft.  For example, the recent ISM Indexes for Manufactuing and Non-Manufacturing have been positive but weak along with postive but weak GDP readings.  So while we are recovering, we are far from recovered.  As such, the Fed is not going to start tapering yet.

“Taper schmaper” – Don Draper.  He didn’t really say that, but it rhymed and if you read this far, I have a responsibility to throw in a chuckle.  Yes, my opinion is that a taper is a longer way off than a lot of people are speculating all of the sudden and no I do not have a crystal ball.  But when I’m driving down the highway and going 65 mph, I don’t start to slow down for the exit ramp when it’s still 20 miles away. So based on that, I’m saying that tapering is a ways off.



Investment advice offered through Monument Advisory Group, LLC a Registered Investment Advisor (RIA). Securities offered through LPL Financial.  Member FINRA/SIPC.  Monument Advisory Group and Monument Wealth Management are separate entities from LPL Financial.

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 is an unmanaged index generally comprised of companies with lower price-to-book ratios and lower forecasted growth values.  The 2, 10 and 30 year Treasury is simply the yield at the close of the day.

(1)      West Texas Intermediate crude spot price is as of end of week.

(2)      London Bullion Market Association; gold fixing pricing at 3 p.m. London time.

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David B. Armstrong, CFA

President & Co-Founder

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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