The Labor Department said the U.S. economy added 287,000 jobs in June. That was far more than the average economist forecast of 175,000, and the biggest gain since last October. Hiring was reportedly strong in leisure and hospitality (up 59,000), health care and social assistance (+58,000), professional/business services (+38,000) and retail (+30,000).
But in that same release, the government said construction employment was unchanged, while mining lost another 6,000 positions. The unemployment rate jumped to a greater-than-expected 4.9% from 4.7%, while average hourly earnings rose a less-than-expected 0.1%.
The average workweek also remained unchanged at 34.4 hours. And it turns out that May’s gauge was even worse than previously reported, up just 11,000 rather than up 38,000.
|A wild week for markets went even wilder after the release of Friday’s jobs data.|
Needless to say, the markets were surprised by the news. In the immediate aftermath of the report, stocks surged, bonds tanked, gold and silver plunged, and the dollar rallied sharply, particularly against “risk off” currencies like the Japanese yen.
But curiously, while stocks held their rally through the close, bonds didn’t stay underwater. They reversed sharply higher in price, with futures setting an all-time high and yields and yield spreads plunging.
Oil also decoupled from stocks, falling early on and finishing near the flat line. The Japanese yen reversed to the upside, rallying all morning and afternoon, while gold and silver gained back everything they lost and then some.
So what’s my take? I find it pretty strange that we supposedly went from the worst job market in almost six years … to the best job market in eight months … in the span of just a few weeks. As a matter of fact, this was basically the biggest one-month swings in the history of the data.
If you smooth out the last several readings, you see there’s a clear deceleration from the pace of job creation in 2015 and 2014. That confirms to me that we remain very late in the credit and economic cycles. Other facets of this report look somewhat weak behind the headlines. And the yield curve continues to send out worrisome signals about expected growth and inflation. Perhaps all of that is why the market reactions were so disjointed.
Heading into the number, I took multiple rounds of profits on long positions in gold and bonds in my active-trading All Weather Trader service, including up to 25.4%, 35.5%, and 51.8% in as little as six days. That’s because we had such a huge run in those asset classes. I also peeled off more profits on a handful of bearish stock positions.
But I have no plans to change my longer-term positions, or views on the economy, in either All Weather Trader or my Safe Money Report. Nor does this number change my view on the merits of cautious investing.
This remains an extremely volatile market, and one that’s completely different in tone, structure, and fundamental underpinnings from what we had between 2009 and 2015. You CAN make money. But you have to seek out yield and capital gains in different places than you did previously.
That’s my take anyway. What’s yours? Does this number tell you the economy is reaccelerating, and that stocks should rally to new highs as a result? Or do you think the report has “hair” on it? What have you been investing in lately, and do you plan on changing the mix of your portfolio given the latest jobs figures? Hit up the comment section below and let me know your views.
It has been one wild week for markets, including stocks, bonds, and gold. So just what the heck is going on, and where are markets headed next? Several of you weighed in with your observations in the past few days.
Reader Bob cautioned against relying on profit estimates when making investment decisions, saying: “You cannot take estimated earnings to the bank. Given the financial state of the world and the U.S. in particular, I see little room for optimism at the present time. Estimates seem to change rather quickly.”
Reader Jake shared his view on how elevated cash holdings could impact markets, saying: “Have you ever considered that both individual investors and institutions are sitting on a huge load of cash right now? Never before have investors been holding this much funny money in their accounts before.
“Now when the first 15% correction comes, what is going to happen to all that liquidity? It is going to flush into the markets. So yes, the correction is coming. But it is going to be severely smaller than you expect.”
What about rock-bottom interest rates and how to cope with them? Reader Nels said: “The only advantage individuals have over professional investors is that we don’t have to invest when there are no good investments. Stocks are generally overpriced. Bonds are generally overpriced.
“We are supposed to buy low and sell high, so we should be selling off our stock and bond investments, not buying more. Sell to the pros, who don’t have the latitude or the fortitude to stay out of the markets, and wait for good investments to become available again.”
Picking up on the interest rate theme, Reader Richard said: “As an older American who worked and led a conservative life while accumulating savings, I find today’s low interest rates punitive. I can’t earn anything on my cash without taking unacceptable risk or falling prey to a con man.”
On the topic of gold, Reader Ralph said: “We could see a 15 to 20 percent correction in gold stocks. The move in gold stocks has been somewhat parabolic. Hard to say where it stops, but when it does, look out below for a retest of $1,300.”
Lastly, Reader Pete said: “I’m becoming less convinced that the last 30 years or 130 years can provided any insight into the next 30 years, let alone two years or less. It’s not hard for an attentive person to see that peace isn’t going to break out soon, and that the global political and financial systems are breaking down, including the U.S., in a completely different way. I no longer look to the past to predict the future.”
Thanks for sharing your thoughts here. I continue to remain cautious on stocks, outside of select, lower-volatility, highly-rated, “Safe Yield” names. I continue to remain bearish on the economic outlook, and the moves central bankers are making in a vain attempt to bolster it. So by default, that means I’m generally bullish on gold and lower-risk bonds. But I agree that they have had such a huge run that a potentially sharp, short-term correction wouldn’t surprise me one bit.
Didn’t get a chance to weigh in yet? Then be sure to add your comments today or over the weekend.
In the wake of police shootings of two African-American men that were captured on camera, protests and marches were held in many parts of the U.S. One turned tragic in Dallas last night when multiple suspects rained sniper fire down on police officers manning the protest route. Five officers were killed, while six others were injured, making this the worst mass-killing of uniformed police since the 9/11 attacks.
Money isn’t just flooding into government bonds at lower and lower yields. It’s also flowing to corporate bonds, especially in the wake of the European Central Bank’s announcement several weeks ago that it will buy corporate debt too.
Bond funds overall took in $14.4 billion in the immediate wake of the Brexit vote, according to one firm that tracks flows. A separate tally from Bank of America shows that fixed-income funds of all types have attracted $94.1 billion in investor cash year-to-date, while stock funds have seen $85.1 billion walk out the door.
South Korea plans to field a Terminal High-Altitude Air Defense, or THAAD, anti-missile defense system in the country. It says the system will help defend against potential ballistic missile threats from North Korea. But China is pushing back, saying the move will upend the delicate balance of military power in the region. The U.S and China are already butting heads over China’s aggressive base-building and military deployments in the South China Sea.
I’ve always wanted to fly on an Airbus A380 just for the experience. But airlines are increasingly turning their backs on the double-decker jumbo plane that was introduced in 2007. That’s because the four-engine plane is less fuel-efficient and more expensive to operate than single-deck, two-engine planes on long-haul flights.
What do you think about the tragic events in Dallas, as well as the police shootings that precipitated them? How about the ongoing flight of money to bonds from stocks? Any other thoughts on the China-U.S. tensions, or the fading of the A380’s popularity? Share them at the website when you have a minute.
Until next time,
A note from Jeff Cantor: I’m deeply concerned about the explosion of mass shootings and terrorism we’re seeing in places like Columbine, San Bernardino and Orlando. I absolutely refuse to stand by quietly while these kinds of tragedies continue to happen. That’s why I created FREEDOM FROM FEAR with Sheriff John Bunnell of America’s Wildest Police Videos. And it’s why it’s so critical that you view it the minute it’s released Tuesday, July 12. Click here now to register!