|
The stock market started the week with a bang, and held its own fairly well on Tuesday. But as Friday's employment report looms, it looks as if profit taking, and maybe some sideways movement lies ahead.
It’s possible that Wednesday, and perhaps Thursday could be good days as well as first of the month money from mutual and pension funds continues to come into the stock market. Investors should still be cautious, though, as much of the action in the next couple of days depends on what the private sector employment data shows on Wednesday, and how the market reacts to it. Even more important is what happens Friday, as the Department of Labor’s employment report will be what seals the fate for the rest of the week. Traders got a nice break from the calendar in June, as the first five days of the trading month, usually a bullish period for stocks, came in one week, and it is capped by the employment report. That kind of arrangement gives short-term traders a nice package to deal with.
Yet, with Fed Chairman Bernanke in front of Congress on Wednesday, and a heavy calendar of economic news ahead, just about anything is possible. Our employment bellwethers, Administaff (NYSE: ASF), Manpower Inc. (NYSE: MAN) and Monster Worldwide (NYSE: MWW) are not particularly encouraging.
Chart Courtesy of StockCharts.com
Administaff, which is a good gauge of how the market feels about the small business sector of the economy is not doing well at all. In fact, the stock has lost significant ground during a period when the overall market has gained. This is a significant negative, and it goes along with recent data suggesting that small businesses are starting to feel the pinch of the economic crisis. Recently, we've reported on issues such as small business loan defaults rising, as well as small companies having to choose between providing health insurance or firing their workers. Many are choosing to forego health insurance coverage.
Chart Courtesy of StockCharts.com
Monster Worldwide's chart, is slightly better than Administaff. But it's the same basic pattern. The S & P 500 has made new highs recently, and Monster, which is a bellwether for the middle of the employment curve, ie. technical and support staff, is nowhere near the top of its trading range.
Chart Courtesy of StockCharts.com
Manpower Inc., which gives us a glimpse into the upper end of the employment spectrum, is the only one of our three bellwethers that is keeping up with the S & P 500. That suggests that CEOs and upper management types are not having as much difficulty finding jobs as are the rank and file.
The most recent data out on employment, provided by the ISM Manufacturing Index is tepid at best. The ISM Employment Index summary noted: "ISM's Employment Index registered 34.3 percent in May, which is 0.1 percentage point lower than the 34.4 percent reported in April. This is the 10th consecutive month of decline in employment. An Employment Index above 49.7 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. Two of the 18 manufacturing industries reported growth in employment in May: Nonmetallic Mineral Products; and Food, Beverage & Tobacco Products. The industries that reported decreases in employment during May — listed in order — are: Wood Products; Primary Metals; Furniture & Related Products; Textile Mills; Electrical Equipment, Appliances & Components; Transportation Equipment; Fabricated Metal Products; Paper Products; Miscellaneous Manufacturing; Petroleum & Coal Products; Printing & Related Support Activities; Chemical Products; Machinery; and Computer & Electronic Products."
New data will be out this mornig with the ADP Employment Index to be release at 8:15 Eastern time. Expectations are for worse data than last month's.
Conclusion
The overall economy is a mixed bag, and uncertainty is on the rise because of the lack of cohesiveness in the data. Uncertainty is a bad thing for stocks.
The stock market has been rallying partially from a very oversold condition, and partially on hopes of economic improvement. The data has been mixed, with housing improving, and retail sales showing signs of the rate of descent slowing.
But the key to consumer spending is employment. And with spending falling, and savings rising, more bad news on jobs, if that's the way things work out on Friday, will likely send stock prices down, as traders realize that they may have gotten ahead of themselves in predicting an economic recovery.
Our bellwether data suggests that the market is confident about the upper end of the job spectrum, but is increasingly pessimistic about small businesses, the largest employer in the U.S. economy.
On the other hand, there are some signs of improvement in some areas of the economy, as the ISM report showed that new orders for products are rising and inventories are starting to decline.
If Friday's employment report is dismal, though, we could still see an unraveling of the rally in stocks.
Get Dr. Duarte's All NEW Books "Market Timing For Dummies." and "Trading Futures For Dummies." The Trading Manuals for All Seasons. Also Available As Kindle Books.
|
