| Home | About | Archives | RSS Feed |
@theMarket: A Sea of Red
 |
In April, the labor force participation rate, the employment-to-population ratio, and the number of people who said they are employed all fell in the month. The sad fact was that 350,000 people quit looking for jobs altogether. As a result, the labor force technically shrunk, which makes the overall unemployment rate look better than it actually was.
Investors ignored the fact that the number of jobs that were reported by the Bureau of Labor Statistics over the last three months was all revised upward. In total, during the last quarter 53,000 more jobs were gained but went unreported until now. But the market focused solely on this month's data and sold accordingly.
I think that responding to an individual data point is a mistake. Data like unemployment numbers, GDP and the like should be viewed over time. It is the trend that counts, not individual data reports, because government statistics by their nature are highly inaccurate and most of the time undergoes several revisions before a final figure is reported. Yet, the markets insist on trading off today's numbers as if they held the answer to the market's directions for days or weeks into the future.
The big drop in labor participation, however, is not a good sign for the economy or for the administration. In an election year, the GOP frontrunner, Mitt Romney, is asking voters if they are better off today than they were at the beginning of the Obama administration. Clearly those 350,000 workers who have abandoned the work force will answer with a resounding no.
And yet the total number of jobs has grown since President Obama came into office, so both sides will use the unemployment data to suit their own agendas. As the politicians blame each other for the failures and take credit for the successes, no one is really enunciating a clear and precise plan for how to increase the number of jobs in this country. It is simply a game of sound
Overseas, this weekend there are also elections in both France and Greece. It appears from the polls that Nicolai Sarkozy will lose the presidential election and French Socialist candidate Francois Hollande will take over the reins of power. This will present a problem to both Germany and the European Union since Hollande intends to renegotiate the recent austerity pact signed after much deliberation and market turmoil by EU members.
In Greece, parliamentary elections will be held in the midst of a deep recession caused by these same austerity measures. There is enormous unhappiness among Greek voters toward the European Union and its own leaders in both major political parties. Extreme and radical fringe party candidates have been gaining support. There is a chance that voters will not only reject both parties but elect new radical leaders that will want to either renegotiate all their past agreements with the EU or outright reject remaining agreements within the Eurozone altogether.
Given this background, it is not surprising that investors are selling first and waiting for the elections results later. Next week could offer investors a wild ride if things go the wrong way in Europe. Despite the sell-off this week in the markets, we are still a mere 33 points below the level of the S&P 500 Index at the beginning of April. We could easily fall further given the right circumstances. My advice is to stay defensive and remain on the sidelines until the landscape is a bit less muddy.
Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at (toll free) or email him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.
The Independent Investor: 'Sell in May and Go Away?'
 |
Back in July 2008, I wrote in "Myths of the Market":
The most convenient thing for all of us would be to cash in our chips, get to the sidelines and enjoy our summer. If you had done so in 2010, you would have missed a meager 1 percent gain in the markets between April 30 and Oct. 31. In 2011, you would have dodged a 6.7 percent slump in the averages. But markets usually do what is most inconvenient for the greatest number of investors.
A recent report from Ned Davis Research pointed out that the Selling May strategy doesn't work nearly as well when it occurs in a presidential election year. They looked at every presidential election since 1900. Investors on average would have missed a hefty 4.4 percent gain as measured by the Dow Jones Industrial Average in those years by selling in May. If an incumbent wins, the gains are even higher (7.6 percent).
Now, before you reverse course and buy everything in sight, a word of caution is appropriate. The same study did show that, on average, a correction did occur during the second quarter of presidential election years. The duration of the pullback is what differs.
Usually, a summer rally occurs after the second quarter sell-off in an election year. When the incumbent party has lost the election, the summer rally fizzled out and the Dow made a new low in late October, followed by a weak year-end rally. When the incumbent won, the summer rally was stronger and the pullack in the fall was mild, followed by a strong gain into the end of the year.
The explanation for the differences in these presidential election-year markets comes down to uncertainty. That uncertainty is compounded when the economy has been weak, as it is now. Leadership in times like these is extremely important to market investors. Some would argue that the incumbent (the devil you know) is preferable to one you don't know, who may or may not, usher in successful policy changes. The presidential candidate's party affiliation did not appear to have any bearing on the results.
So the moral of this tale is that there may still be a sell-off between now and the end of June, but politics will have an inordinate influence on what happens this summer and fall.
Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at (toll free) or email him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.
|
