You know the mantra. As the beginning of January goes, so goes the month, and so goes the year. And it’s not that off the wall. The first five trading days have gone the same direction as the year 72% of the time over the last 60 years.
This year marked the ninth-most intense upside start for the S&P 500 in the more than half a century, and it’s happened despite some eyebrow-raising economic data and a tall economic order for the year ahead.
As traders embark on a shortened week, key housing and inflation data could offer more enthusiasm. The December readings on housing starts and building permits scheduled to be released Wednesday are expected to show improvement. And the December reading of the Producer Price Index is projected to show that inflation remains subdued – a positive sign for low interest rates.
Still, to log a win for the rest of the 52-week session, the market will have to overcome some obstacles. A sustained rally faces these four headwinds.
The unemployment rate remained stuck at least 10% for the entire fourth quarter of 2009, but the release never triggered a selloff that derailed the rally. The rate is expected to stay high or even rise this year.
Of course, the unemployment rate can be deceptive – it can rise even after job losses stop. When people who had stopped looking for work rejoin the unemployed pool by indicating that they are again looking, the Bureau of Labor Statistics takes a jelly bean out of the discouraged worker bucket and puts it in the unemployed bucket.
But market strategists agree that job growth is a necessary condition for broader economic growth in 2010.
With “hours-worked” at a record low 33 hours a week, businesses will likely give current employees more hours before they start to hire, says Phil Orlando, chief equity market strategist at Federated Investors.
The government is going to hire 1.4 million census workers in the first half of this year, which should add a couple of thousand of jobs a month, says Orlando. “That should put us in the positive column.”
If not, there will be problems. “At the end of the day, it’s the most important thing for the economic recovery to be sustainable,” says Bill Stone, chief market strategist at PNC Wealth Management. “If you don’t have a job you can’t have retail sales, or top-line growth, the whole thing becomes a house of cards.”
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