Ever wonder why markets go crazy when big economic reports come out? Take last Friday's jobs numbers. The instant the number was released, S&P 500 futures plunged 8 points, just like that. A minute later, they were even again. Three minutes later, up 3 points. That's all the volatility you'd expect on a pretty big day -- all packed into three minutes.
The reason for the big swing: Stocks react instantly to the superficial headline number -- and whether that number is above or below expectations. Friday, the headline -- the very first words uttered on CNBC or published on the newswires -- was that the economy had lost 97,000 jobs in September, when the expectation was zero. Seemingly a big downside surprise, so sell 'em off!
The idea is that if the economy lost that many more jobs than expected, things must be pretty awful -- maybe we really are headed for a double-dip recession after all. So sell!
But then within seconds, investors began to digest other elements of the report. The second thing everyone saw Friday was that private payrolls had grown by 64,000 last month. That meant government jobs must have shrunk, but the real economy grew. And the total payroll decline was only a little below the expectation for 74,000, so maybe things aren't as bad as they seemed a second ago. Quick -- buy back those stock index futures we just sold!
Then, in another couple seconds, the next key number comes out -- the unemployment rate. It was 9.6%, when the expectation was 9.7%. A little upside surprise. Buy some more!
And that's just the first few seconds. There's still an hour until the New York Stock Exchange opens. By then, everyone will have had a good look at the numbers. If you didn't trade futures in the first few minutes, you'll have the whole rest of the trading day to draw your own conclusions and make your own play.
But the earlier the better. You should have the whole Employment Situation Report downloaded from the web site of the Bureau of Labor Statistics. For some reason, even though the futures markets have had an hour to process the information, and individual stocks have been trading in the pre-opening session, the New York opening bell is always another opportunity for the markets to reappraise the number.
On Friday, stocks recapitulated in slow motion what the futures had taken seconds to do, an hour earlier. In the first hour, the S&P 500 traded down 8 points. But from there it worked itself higher all day, and closed at a new recovery high.
Apparently, the more the market looked at the jobs numbers, the better it liked them. Is there anything you could have done to have known that in advance -- that is, to buy stocks in that first hour when they were down? I think there was.
Let me share with you the key indicators I look for in a jobs report. It was pretty clear on Friday that they all lined up bullish.
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