Friday's August jobs report, just in front of the Labor Day weekend spawned some buyers to step up and buy stocks. It really was not much of a surprise to most, but considering the negatives from the July numbers even beating downtrodden expectations was worthy of a 'whew'. While there were a few good things to take away, I don't see much progress here. Oh, we can see that private sector has been growing, but a key number came out earlier in the week - reduced productivity. Companies are not getting the maximum efficiency when it comes to production, and the result can be twofold. In an economic growth spurt the current labor force cannot handle all the work, which forces companies to hire more workers. On the flipside if the economy is declining with lower productivity then we can expect more layoffs or job consolidation until firms find that sweet spot that matches employment and productivity (basically, too many people sitting around with not enough work to do). Also earlier in the week we saw spending on the rise as wages came down. How do you explain it? The great 'credit monster' is coming back! How do you spend more than you earn? You borrow, pay on credit cards...or even take it out of savings. Borrowing has been falling off a cliff for about two years now, we'll see if this is a trend shift that we need to pay attention to.
The Noise Will Get Even Louder
Last week we talked about the upcoming November election, certainly a possible gamechanger that could effect the next couple of years. Have the democrats run out of steam? Certainly the 2006 and 2008 election saw them take many seats from their republican opponents, but the party of Lincoln is talking about a renewed spirit. Whatever the case the noise will become deafening, so much so that it could cloud our decision-making. When the noise gets loud - policy issues, voter ideas, propaganda, commercials, etc. then we have to be careful and pay attention to how the market is effected. As we get closer the influences become louder and stronger and we're likely to see sentiment sway back and forth.
Technical Picture is Shifting a Bit
This past week was strong, no doubt. But did it really change the technical picture enough to swing sentiment, or vice versa? Many see the market as the main culprit to swinging sentiment, but I believe the opposite to be true. Sentiment is a function of how we feel, an illogical emotion with respect to money, investing and trading. If we could check those emotions at the door and not react on them we may be better off and trade more efficiently. However, we are all emotional beings where fear and greed take over our minds and cloud decision-making. Truth be told we tend to check our feelings FIRST before we put our dollars at work. When fear is high we see dollars retreat, opposite is true when greed is prevalent. So, recent swings from greed to fear and back to greed are dominating the action...and is often a precursor to what we see in price moves. Investor sentiment hit multimonth lows just two weeks ago but made a recovery last week, and then we had the rally this past week to start the new month with a positive move. Perhaps investor sentiment will now shift to the extreme bullish side now and we'll see some correction coming, perhaps as soon as next week. Overall, the market is still rangebound, now in the upper end of the range as the traders/investors struggle to find the right direction for the economy.
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