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Volcano: A Mountain with Hiccups


I recently went exploring in Hawai’i Volcanoes National Park and came across a part of the lava flow that covered a road along the coast.  I thought this picture I snapped of a surviving road sign was a good lead in to my comments about what happens when everyone expects the worst.

See, no one seemed optimistic leading up to Friday’s payroll report, but once it came out and surprised everyone to the upside, it created a wave of buying that pushed the Standard and Poor’s 500 Index (S&P 500) and the Dow Jones Industrials to new highs.  The S&P 500 Index set a new milestone, surpassing 1,600 for the first time and ending the week at 1,614.42. The Dow couldn’t quite hold on to 15,000 but finished at a record of 14,973.96.

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

Weekly Market Returns 5-6-13

Taking a look back to the beginning of April, the government reported that nonfarm payrolls grew by just 88,000 in March.  This was horrible, as I discussed in previous blogs.  The 88k print ended up being less than HALF of what economists had been expecting. Since then, while there have been a few (very few) bright spots, most of the economic data we’ve been seeing in recent weeks has been…well…soft.  This includes data on everything from retail sales to durable goods orders.

So as a result, no one on Wall Street was expecting anything other than a lackluster number on Friday.

But WHOA!!!! Nonfarm payrolls increased by 165,000 in April.  This was WELL above the Bloomberg forecast of 153,000. While that does not seem to be a huge blowout, the fact was that there were a number of analysts (many of whom were on CNBC blabbering on and on) who were expecting a much weaker report. The cherry on top of the report was the significant upward revisions to the numbers released in February and March.

Oh, and remember that pathetic March reading of 88k?  Well that was revised up to 138,000! Couple that with that fact that February’s solid 268,000 reading was revised up to a very nice 332,000 increase!

Alongside the increase in nonfarm payrolls, the unemployment rate continued its descent, falling 0.1% in April to 7.5%. Unlike other recent decreases in the jobless rate which occurred as people left the workforce, April’s decline was due to stronger employment registered in the separate household survey report (nonfarm payrolls are taken from a different report). That means that the unemployment rate declined to 7.5% while the labor force remained unchanged, which is a nice change of pace.

But let’s keep this in perspective, since I’m sure we will hear about these great numbers in some soon-to-be-upcoming political press event. The average employment gains over the last eight months have averaged a somewhat respectable 193,000, but that has just been barely pecking away at the unemployment problem.

I read a funny cartoon over the previous week that showed a politician conducting a press conference and it went something like this, “Every single person, except Bob here who just got job, has dropped out of the labor force and has quit looking for a job.  As such, I am proud to announce that the unemployment rate is ZERO.” See, the headline-grabbing jobless rate of 7.5% doesn’t include those who have given up looking for work, nor does it include part-timers who want full-time work.

Nonetheless, the real news of Friday’s announcement is the sigh of relief that job growth, and by proxy economic growth, doesn’t appear to be slowing too quickly. And that’s what got the rally going on Friday.

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IMPORTANT NOTE: Due to industry regulations, comments are not permitted on this blog. If you would like to contact the author, please email us at info@monumentwm.com.

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Monument Advisory Group, LLC, a registered investment advisor.  Monument Advisory Group, LLC, 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. photo

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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