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Weekly jobless claims were at 500,000 – but who expected companies to be hiring?

By David B. Armstrong, CFA | Aug 23, 2010 | Weekly Market Commentary

The equity market indices were mixed last week with the Dow Jones Industrial Average losing 0.87% to finish the week at 10,214, the S&P 500 Index losing 0.70% to finish at 1,072 and the Nasdaq Composite Index gaining 0.29% to finish at 2,180.  The Russell 2000, which measures smaller capitalization stocks, gained 0.21% to finish at 610.78.

Economic reports continue to point out that we are seeing the economy struggle as the pace of recovery slows.  The weekly jobless claims increased to reach 500,000, which is a number we have not seen reported since November of 2009.  This was an unfortunate surprise since that number was actually predicted to decrease this week.  Additionally, this is the 3rd straight week of job losses and unemployment is still hovering at about 10%.  It’s possible that we will continue to see high unemployment as corporations will probably continue to keep costs low in the face of an unknown tax and regulatory landscape.  Since salaries are one of the biggest costs a corporation faces, it makes sense that unemployment may stay high while earnings and revenue possibly continue to increase over the next few quarters.

As we have been writing for a while, it is clear to us that the economy is slowing – no doubt about that.  The press terms this “a slow patch” and it’s quite common after a recession and a rapid recovery like we have experienced.  A slowdown is a lot different than a “double-dip recession” which would happen if GDP went negative again.  We are keeping a close eye on the data here at Monument Wealth Management to determine whether or not a slowdown becomes a double-dip recession.

Until GDP is forecasted to be negative, the number of hours people are working decreases or their wages shrink, we think it’s simply a soft patch.  Additionally, there is no evident threat of deflation (wasn’t it just a few months ago that everyone was screaming about the impending inflationary picture?) and we’ve basically just concluded a terrific corporate earnings season where profits beat the expectations by 10%.

Bottom line – while GDP forecasts have been reduced by several different top economists we follow (now around +2%), they are a far cry from zero.  While it’s not impossible for GDP to go negative – and to be clear, it is still possible – we think that we are in a soft patch transition from the recovery led by the stimulus to a recovery led by sustainable growth.

Please call us with questions or if we can help.

Securities and Financial Planning offered through LPL Financial, a Registered Investment Advisor.  Member FINRA/SIPC

**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 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.

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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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