A Massive Jobs Miss (In More Ways Than One)
/Hi everyone,
Before I get to the flop that was the February unemployment numbers, here is a video we made recently that explains how we go about managing investment portfolios for clients. You likely know much of this already, but if not, hopefully it sheds light on our process.
Jobs numbers thud: Something funny happened on Friday. I was sifting through news on my way into the office and saw the headline showing that the economy had added 200,000 jobs in February. Not thinking much of it, I continued on with my morning.
A couple hours later I was grabbing coffee and noticed that this particular jobs report was getting more buzz than normal. So I looked at it again. Economists expected 180,000 jobs to be added and the actual number was +200,000 jobs.
Great, so it beat expectations. Still though, I didn’t understand the reaction.
Then I realized it…
It wasn’t 200,000 new jobs. It was 20,000 jobs.
A BIG difference… Except after a few minutes went by I noticed my reaction was the same as when I thought the number was just 20,000.
This sums up how economic data points influence our day-to-day work. The market and the economy are two different things. The market leads the economy, not the other way around. Even if that was not the case - let’s say the stock market did react to such data points - it would be impossible to base an investment process off of economic readings.
The irony is, the unemployment rate actually fell from 4.0% to 3.8%, as the number of people considered “not in the labor force” increased. When that number rises, those who are excluded from the labor force are removed from the unemployment calculation altogether. This helps lower the unemployment rate. If they were instead looking for work they would be considered unemployed.
In The Market...
The S&P 500 fell -2.1% last week. Let's look under the hood:
(price data via stockcharts.com)
Last week was the worst since mid-December and just the second down week of 2019. If you read my thoughts the past couple weeks this was not a total surprise, as there were multiple reasons to think that stock prices would stall. Here is essentially the same chart of the S&P 500 index from last week, highlighting three things:
The aforementioned -2% weekly price decline.
The falling trend in Relative Strength (RSI), reflecting possible weakening momentum.
The falling percentage of stocks that are above their respective 200-day moving averages (54%), which also reflects possible weakening momentum.
(chart created via stockcharts.com)
Not shown in the above chart, the S&P 500 fell below its 200-day moving average as a collective whole. Normally that would be cause for concern, and to some degree it is. However, I think the odds favor a bounce from here rather than a continuation of losses in the weeks ahead. Without getting more technical, I believe that the market has digested much of this “corrective” behavior and is closer to starting a new rally than it is to deeper losses. I could be wrong there, and the picture is anything but clear, but that is my judgment.
We made a few moves last week, most notably shuffling our bond positions out of Long-term Treasury Bonds (SPTL) and over to Long-term Corporate Bonds (SPLB) for certain accounts. We also made some buys and sells among the individual stocks we own, for those accounts that own individual stocks. As always, feel free to ask if you have any questions.
In Our Portfolios...
What's New With Us?
Happy birthday to us! Our firm turned 7 years old as a Registered Investment Adviser (RIA) firm. It has been a great experience and want to thank you for trusting us to advise you and manage investments for you. Here is to many more great years ahead!
Have a great week!
Brian E Betz, CFP®
Principal