November Unemployment 7.0% from 7.3%, Nonfarm Payrolls +203K
The November Employment Situation Report showed sharp improvement in the labor situation. Unemployment improved by far more than the economist community forecast, as did the nonfarm payroll figure. Private nonfarm payrolls, which should be the driver of job growth in America, led the way with an increase of 196K net new jobs created.
Ave Hourly Earnings
The news was received well by the market. It was a blowout report, meaning that it was so good on the surface that it reassured the investment community that a Fed taper might even be appropriate. Investors are concerned that a premature Fed tapering of asset purchases might stifle a still needy economy. But this data seems to say the economy is standing strongly on its own two feet, and so there is reduced fear of a premature action.
Dec. 6 Early AM Change
SPDR S&P 500 (SPY)
SPDR Dow Jones (DIA)
PowerShares QQQ (QQQ)
SPDR Gold Shares (GLD)
iShares Silver Trust (SLV)
PowerShares DB US Dollar Bullish (UUP)
Bank of America (BAC)
Darden Restaurants (DRI)
Health Care Select Sector SPDR (XLV)
SPDR S&P Homebuilders (XHB)
As you can see in the table above, stocks are broadly higher Friday morning, save Apple curiously enough. The table here offers a good representation of much of the market in my view, including areas where better labor data would show up more strongly. This is exaggerated in the insurance firms like MetLife, because their assets include other financial securities (it's like a derivative). The consumer sensitive stocks are well-represented here, with the two major retailers online and on the street in Amazon.com and Wal-Mart included. Darden Restaurants' casual dining locations are a step up from the McDonald's (MCD) of the world, and benefit when the economy improves.
It's interesting that gold and silver are higher along with the rest of the market and the dollar. What we have is one of those days when betas align and the tide takes all ships with it. It happens when news is good or bad enough to affect all capital flows into investment assets.
The market could use more economic data like this. Blowout figures that ease investor concern about the Fed taper allow the Fed to appropriately hedge against inflation without hindering economic growth. I started this article with the words telling how good the report was "on the surface," and unfortunately, that accurately implies that below the surface, they remain imperfect. The U-6 figure improved nicely this past month to 13.2%, and you can bet that news is helping to ease investor concern about the missing unemployed. You'll recall that the U-6 figure reclassifies part-timers and the marginally attached to the labor force, considering them like unemployed; it is the underemployment rate. However, it still misses important changes in the labor force, when people disappear from the radar because they are now collecting disability checks; or if they are unemployed and undocumented; or operating in the black market. Still, the improvement in the U-6 from 13.8% to 13.2% is enough to clear away investor concern about this issue.
No matter what, the investment community is likely to eventually take Fed tapering badly, at least initially. Still, the more support we can get from the economic data, the more confident we can be in our outlook. Risk acceptance follows along with continued investment in equities. If the data keeps coming in strongly, the reaction of the market when Fed tapering finally starts will be shorter lived than if Fed tapering started before such supports were in place. In other words, we'll be able to stand on our own two feet and the stock trend will continue higher.