Unemployment Falls To A 50-Year Low (Almost)
/The unemployment rate fell to 3.9% in April, which is the lowest/best rate since exactly 18 years ago when it was 3.8% back in April 2000.
If that sounds impressive, consider this: If unemployment improves below 3.8% in the coming months it will be the lowest rate in nearly 50 years, dating back to 1969. Take a look:
This is a great trend. Employers are steadily hiring. A potentially better job market indicator than the standard unemployment calculation is another that the Dept of Labor calls the U-6 unemployment rate, which measures:
(Traditional unemployment rate) + (Those working part-time due to economic reasons) + (Those unemployed who have looked for a job sometime in the past 12 months but are not actively looking right now)
This under-employment rate is, by nature, historically higher because it includes more of the people who the DOL considers to have "dropped out of the labor force" under the traditional unemployment calculation. It currently sits at 7.8%. It is typically around 2x higher than the normal unemployment rate, which coincidentally is exactly what it is today. Take a look at the trend in this U-6 rate:
One thing that may jump out to you about the under-employment rate is that it is trending closer to the level where the previous two recessions occurred in 2002 and 2008. On both occasions it took some time for the stock market to tank from the point at which this U-6 rate fell to the mid-7% range, but it is still worth noting.
All of this is positive, although it is still unclear (at least to me) how much it matters that more and more people are leaving the labor force altogether. These people are not counted in any of the data. Another 400,000 people left the labor force in April, bringing the total number of working-age citizens not working to nearly 96 million. This is not a surprise given what a high percentage of our population is comprised of Baby Boomers, but it is still foggy whether the increase in non-workers is tolerable over the long run.
In The Market...
The S&P 500 fell -0.2% this past week. Let's look under the hood:
(price data via stockcharts.com)
While unemployment falls the stock market is not budging. The S&P 500 remains flat on a year-to-date basis and last week did little to suggest that a big move is coming in either direction. The S&P index continues to flirt dangerously with its 200-day moving average price, even falling below it on Thursday before staging a rally to end the week. Not to beat a dead horse, but a sustained drop below the 200-day average would likely spell problems for the overall market in the weeks that follow.
Sector-wise, most areas of the market were negative this past week. The lone runaway winner, Technology, was up +2.6%. This was nice to see given that Technology is the only stock sector we are invested in right now. Tech is the healthiest looking sector, with Energy just behind. We actually sold our Energy position (XLE), which might seem odd considering that just last week I mentioned looking to buy Energy for more accounts. This was a short-term decision to sell. I would like to repurchase Energy in the future, but some things need to sort out first.
To this end, we are sitting on cash balance right now. The exact cash allocation ranges from 20% to 50% of the account total, depending on the aggressiveness and size of the portfolio. This is a rarity given that I am continually scouring for investable options, but I do not feel comfortable pulling the trigger right now. Both the stock and bond markets have been stuck in neutral. We could overweight our position in Technology, but I am reluctant to do so given the risk associated with concentrating too heavily in one sector of the market.
Right now the name of the game is patience. Until market conditions improve and new rising trends emerge, we will continue to hold a cash position.
In Our Portfolios...
What's New With Us?
I have been in the process of interviewing candidates for our Executive Administrative Assistant role and will hopefully fill that position soon.
Have a great weekend,
Brian E. Betz, CFP®
Principal