Wednesday, July 2, 2014

A quick note on jobs, stocks, and bonds...

Stock futures are a little higher and bond prices are tanking (interest rates are rising) this morning in response to the Bureau of Labor Statistics (BLS) surprising (to the consensus) jobs number (+288k) for June. Being a little pressed for time at the moment (out of the office this week), I'll reiterate my thinking on the market with this from the other day's "All Else Part 10" article:
So does my new-found optimism about the economy mean I’m crazy-bullish on the stock market this year? Not necessarily. Like I said the other day, since 2013 was such a crazy good year for stocks, amid a very slow expansion, a pickup in growth this year only validates those gains. Not that stocks can’t go higher—based on the market sentiment indicators I track, lots of folks are betting on it—it’s just that the economy needs to show sustainable growth, leading to increased corporate profits, to bolster the market against the inevitable headwind of higher interest rates as the economy treks into the later stages of expansion.

And from "Finally Leaving the Runway?":
While the above is indeed good news for earnings growth going forward—and could very well point to a meaningful pickup in employment—faster growth has to bring a new mindset to the market. While I’ve never joined the this-bull-market-is-all-about-the-Fed camp, I do believe that the Fed’s next policy move has the potential to inspire that long-awaited stock market correction (10-20% decline)—and I believe the Fed believes it as well.

In terms of the Fed, for now, the doves on the board are clearly not inclined to move the needle on short-term rates before next year. My guess is that they (the doves [the hawks are calling for sooner action]) will acknowledge the upward trends but focus on the present lack of wage inflation and lack of growth in hours worked. 

That said, the bond market (this morning at least) is not nearly as patient...

Be back with more soon...

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