Saturday, August 06, 2016

U.S. equities jump on positive jobs report

U.S. equities rose almost 1% broadly on Friday after a jobs report that was more positive than most analysts had predicted.  Financials in general and banks in particular rose sharply, as the prospect of even a minor increase in interest rates would make trading and lending more profitable, or once again profitable after simply being a weight on earnings for the past year.  The stock price rise yesterday, though, was also widespread, covering major tech firms and well capitalized consumer product companies.

The unemployment rate stayed at 4.9%, but more importantly some cumulative wage growth was thought by the market to be evident.  That and continued low oil prices could lead to a gain in consumer spending in the back to school months and then, think the optimists, continue in to the holiday season.  In fact, it is too early to make any such projections but investors are grasping at straws.

Included in job totals are many people who are underemployed or working more than one job. Earnings growth in the aggregate is still modest, and what there is often depends on the financial engineering of stock buybacks.  Capital spending is not growing in any pronounced way, as a conservatism by both businesses and consumers is a lingering effect of the slow recovery.

Retail investors can take solace in the fact that this rise in the market is being led by institutional investors, the presumed professional investors and traders.  They must believe that there is an potential upside from these market highs.  Corporate and insurance company pension funds are particularly hard pressed to bet on this, as their generally actuary projected 7% return is questionable for the year.

For the most part we will simply sit back and watch, looking for ways to improve portfolios but not grow them.  The market may not recognize that it is August, but we do.  Still it seems that nap time has been missed today and the challenge to come up with dinner will be upon us.  It's time then for Tazo zen tea, the zen not to be achieved but some relaxation is possible.

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