Certainly has been more of a tug-o-war in the equity markets this past week.With a data heavy week, the Fed guessing is in full swing and depending on who is talking, it seems the market is ready to react. This is seldom a good indicator that volatility is on the decline. In fact, it can lead to prolonged periods of uncertainty. If there is one thing the markets do not like is being certain of uncertainty.
The widely anticipated job numbers released Friday came in well below expectations.1 According to the Bloomberg estimates the job creation number was projected to be 201,000 jobs when in fact it came in at only 142,000. This got all of the guessing going again about why or when the Fed would raise rates.
The Fed members have been in full force over the past weeks trying to convince the public that they are in fact still anticipating raising rates by the end of this year… subject to economic data. This is largely why every day big economic data is released the markets try to forecast what that will mean for the Fed, for rates and most importantly getting back to normalcy.
The good news is that the economy is still growing. We aren’t in a recession. Little has changed in the data to indicate caution is not the best strategy at this point. Above is a graph of the non-farm payroll as provided by the Bureau of Labor Statistics.2
The interesting thing to note is that while our labor market is still holding on, when looking from further back, it does go in cycles just like the P/E ratios talked about in previous weeks. Here is a further look of the same graph over a longer time horizon.
It is simply interesting to note that unemployment seems to go in cycles. It also appears we are coming to a point where increasing jobs are slowing, but we do have to wait and see more data. No doubt this is troubling to the Fed as well and may give them reason to be more dovish, or cautious in their rising rate strategy.
We continue to maintain our tactical approach to looking at the market in light of economic data. Prudence and caution seem to be the by words of the moment. There are enough indicators that are cause for caution, but not for panic. Who knows, perhaps the Fed will come up with a brilliant idea! We aren’t holding our breath but it is always a possibility. We remain ready to act but have prudently sought to protect accounts where possible.
Written by BCJ Advisor, Benjamin Bimson CIMA®
1 Schwab Market Update, 10/2/15, Despite Labor Shortfall, Stocks Working a Rebound, http://www.schwab.com/public/schwab/resource_center/expert_insight/
2 Charts Source: http://data.bls.gov/timeseries/LNS14000000
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