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“On the Cusp of Recovery”

According to some, the recovery is imminent led by manufacturing as per the ISM index.  Certainly manufacturing data has shown expansion suggesting, hopefully, that improvement in the labor market is not far behind.

Labor data, due out tomorrow, is expected to show increased hiring in the NonFarm payroll numbers with a good portion due to Census temporary workers.  The unemployment rate is not expected to change.

Manufacturing has found a boost as exports have increased and businesses are looking to restock inventory.  The expectation is the inventory is needed as spending is on the rise.  Unfortunately the real rise in spending is not coming from consumers – 2/3 of the economy – but from business spending (which is good, but lacks the umph most are hoping for).  Initial claims data dropped 6K, but the prior week’s numbers were revised by 3K.  Noticeably missing from the Bloomberg data was continuing claims numbers.  The employment numbers supposedly reflect economic expansion.

Further review of the positive expectation reflected by the recent jobs data and analyst expectation finds a missing component - Small Business expansion.  Big business growth and hiring, including government hiring can reflect the perception of recovery, but unless small business numbers improve the “recovery” is less 80% plus of what employs America.

Sentiment continues to give the markets reasons to buy.  Underlying those reasons to buy, however, remain concern of national and international debt. 

Summary:  Continue to play the trend, but remaining hedged is prudent.  As we approach the earnings season expect more volatility leaning toward buying rather than selling and keep in mind that May is the time most “go away” – expect a correction in some form.

Disclosure: no positions