New Jobs Report Shines, Market Moves Forward Again

Upward Trend in Markets

The number for the non-farm payroll report is in for January, and even after adjustments from last month, it was up nicely and exceeded expectations. This is good news.

A much better January new jobs report than anyone expected helped drive stock markets forward again on Friday. The gains were made more modest by a mid-day selloff that saw us give back 200 points with the Dow, although a late rally put both the Dow (+0.26%) and the S&P 500 (+0.09%) back into positive territory.

The NASDAQ, on the other hand, gave back a little, closing down 0.3%, caused by a more lukewarm performance in the tech sector and cooled by Amazon’s loss of 5.38% after a less enthusiastic company forecast was shared.

The market recovery that started back on December 26 continues to move forward, and this marks the eighth consecutive week that the Dow is up, this time by 1.3%. The S&P 500 added 1.6%, while the NASDAQ closed the week up 1.4%, in spite of its Friday loss.

Amazon’s disappointment, where the market immediately priced in Amazon’s forecast of declining growth, did cast a shadow on the market overall as far as people’s outlook may go, but as far as stock prices go, the market opened up strongly in the face of all this.

While Amazon is a pretty big company, its influences on the market don’t come anywhere close to the results of the U.S. non-farm payroll report, which indicates how much new hiring is going on in the country generally.

The Non-Farm Payroll Report is a Big One

We were expecting this number to dip to 172,000, below its average of the last three months. Not only did it not slow down, it increased the rate of growth, coming in at 304,000 new jobs. This fabulous result was tempered though by the Department of Labor by reducing its December numbers by 90,000, leaving us with a much more modest net increase of 42,000.

This is still good news of course, the sort of thing that tends to drive the price of stocks up. While today was no different, the gains we saw were very modest indeed, nothing indicative of a major event in the market by any means.

People also use such things to shape their economic outlooks, and by extension, their market outlooks as well, and this is important to consider as well. Market sentiment matters more than we may think, especially in periods where the downside potential is mounting, as it has over the last while for us.

If we can maintain a positive mood overall, as reports such as this bolster, this can color interpretations of events, and help keep us moving forward. This is all good news then for those who wish the prosperity in the market to continue on past these fairly uncertain times.

This has us now having an average of 241,000 new jobs a month since November, and this is a number that is indicative of economic expansion, comparable with the best periods of our 10- year bull run in the markets. The fact that last month’s number was considerably higher than the average also suggests momentum.

Other Factors Shed Positive Light

The unemployment rate also improved month over month, going from 4% in December to 3.9% in January, in spite of the government shutdown. If not for that, this improvement would have been even more impressive, which we of course account for when we look to interpret this result.

The ISM’s Manufacturing index numbers are also in for January. While we saw this drop pretty dramatically in December, going from 58.8% to 54.3%, January’s number of 56.6% has us moving back in the right direction.

Forecasts were for no change in this reading, so this is another piece of news that exceeded our expectations of growth. Particularly since the fear these days is that the economic growth that we’ve enjoyed over the last decade may be grinding to a halt, these sorts of reports are quite meaningful in bolstering confidence and reducing concerns.

There were worries that the manufacturing sector may be hurt by such things as the strong dollar or the government shutdown, and that might have been a blemish on any perceived recovery, so in the context of this, this news is particularly welcome.

When we combine this with the overall positive outlook on the earnings reports we’ve seen lately, and especially given the Fed’s very welcome message that patience will indeed be practiced, and there is no pressing concern to raise interest rates, we’ve had a pretty positive week on the news front as well.

While there may be some macroeconomic factors at work that are serving to weigh business and the markets down, there are enough good things that we’re seeing and hearing that serve to at least balance this off, if not to show us that there is enough behind us to keep the growth show going for a while longer at least.

What is especially important to observe is the movement of the market itself as it digests and calculates in the meaningfulness of all these events and results, and look for changes, especially changes in the direction of trends.

We’re still on the uptrend for another week.

Robert

Editor, MarketReview.com

Robert really stands out in the way that he is able to clarify things through the application of simple economic principles which he also makes easy to understand.