Mark to Market Aside, Job Decay Must Take Toll on Equities

Includes: DIA, SPY
by: TraderRob

Consumers with stable jobs are likely buy goods and services. Consumers who have jobs but sense their job security is unstable are less likely to buy goods and services. And, consumers without jobs buy only the goods and services necessary to survive. As the unemployment rate climbs in the U.S., it is rational for consumers to pull back spending. Investors and advisers everywhere seem convinced that equity markets will continue to climb higher, but weekly jobs data to be released Thursday morning and the BLS Employment report to be released on Friday may change that sentiment.

The U.S. equity market will likely follow financials on Thursday as investors look for changes to the FASB (Financial Accounting and Standards Board) statement 157 on mark to market rules, where firms must value assets at market value. Since there are no bids for the "legacy assets" on banks' balance sheets there isn't a market price, explaining the volatility and lack of transparency into the health of America's financial system.

For traders who suspect that U.S. stocks are overbought it can be frustrating to watch markets rally into earnings that are sure to be terrible in an economic environment that is expected to remain dire for the foreseeable future.

Inspect the following visual aides and ask yourself whether a further upward move in stocks is warranted...
ISM Man. Index 4-1-09
ADP employment 3-31-09

Crude inventories 4-1-09

Stock position: None.