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Wall Street Strategies has been providing independent stock market research since 1991 to individual, retail and institutional clients through a balanced approach to investing and trading. Charles Payne, our founder and chief analyst, is routinely sought after for his stock market, political,... More
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  • MARKET DISMISSING FUNDAMENTALS - By WSS Research Desk 0 comments
    Dec 4, 2013 2:12 PM

    By David Urani

    Some good economic news from the job market and housing is failing to lift the market today. In fact stocks seem conflicted in this backwards market that's still influenced by the day-to-day workings of the Fed. That being said, if the market wants to cheapen on improved economic data that's fine with us because the cheaper we can get good stocks the better.

    There may be a technical aspect to the action today as well, as stocks initially ran higher before stopping short right at the S&P 500's 1,800 mark and turning the other direction.

    New Homes

    New home sales were encouraging, with October posting a 444k annual rate versus the 425k consensus. That represents a 22% increase over last year and a nice rebound after a recent lull. At this level, we're right back below the April high of 446k. Significant rebounds were seen in all regions during the month, with September having shown a decline in all regions.

    It's certainly likely mortgage rates helped out, with the 30-year having fallen from 4.32% at the end of September to 4.10% by the end of October (and from more than 4.5% at the beginning of September).

    Inventory also slipped for the first time in eight months, by 3.7%. Overall, supply continues to be quite low at just 183k units, which represents a 5.3 month supply at current sales rates and that should continue to be supportive of home values.

    Yet homebuilders aren't catching a break today, with the Dow Jones US Home Construction Index actually down slightly, which is likely because of that pesky treasury yield rising back to its highest rate since September. As always it seems to be the case these days; good economic data means Federal Reserve taper comes sooner rather than later, which means higher mortgage rates. It's that same vicious cycle for homebuilders lately.

    (click to enlarge)

    ISM Services

    Following a good result from the ISM manufacturing index on Monday (which rose from 56.4 to 57.3), the ISM services index went the other direction. The index of service sector activity fell from 55.4 to 53.9 in November. New orders held up relatively well, falling slightly from 56.8 to 56.6, but activity and employment showed discouraging drops. Activity was down from 55.4 to 53.9, and employment was down from 56.2 to 52.5.

    Labor Market Unaffected by Washington Woes
    By Jennifer Coombs

    As we expected, those who fear Fed tapering retreated from the market in the early hours of the trading session after ADP released its November employment changes. ADP reported 215,000 private-sector jobs added, compared to the consensus estimate of 160,000, making November the strongest month for job growth in 2013 so far. Previous analyst estimates for the month of November were higher at 184,000 but had recently been revised lower, and even ADP expected results to be worse and originally forecasted 130,000 - however the actual results trumped both figures. More importantly, this emphasizes the fact that the political melee and government shutdown had little impact on the hiring activity across all industries and sectors. In fact the job market appears to be accelerating, albeit not at a robust rate, and remains notably resilient when it comes to the actions of politicians in Washington.

    Compared to 2012, private-sector jobs appear to be in a much healthier monthly trend this year. There is still a significant amount of ground to make up in order to surpass the number of job-creation levels of 2011 and even more to go to reach the natural rate of unemployment.

    Of the new private-sector jobs, those related to the production of goods came in at 40,000 (up from 29,000 in October) and the service sector created 176,000 jobs, which was the largest gain in the service sector in over a year. Of the jobs created in the goods production sector, approximately 16,000 were added to large companies (with over 500 employees), 13,000 to medium companies (50-499 employees) and 11,000 to small companies (less than 50 employees). Within the services sector, the trend weighted more towards smaller companies which added 91,000 jobs compared to medium companies at 36,000 and large companies at 48,000. Ultimately, we would like to see a consistently strong number of new jobs being added to the small business sector to obtain healthy economic growth.

    The Construction and manufacturing sectors each added 18,000 jobs, which is the largest gain for manufacturing jobs since early 2012. Trade, transportation, and utilities added 45,000 jobs - the most of any group. Lastly, the financial services sector added 5,000 jobs and professional/business companies added 38,000 jobs.

    Obviously it's great that private-payrolls are continuing to increase but it's important to note that we still have a long way to go until we reach stable and sustainable growth again.


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