Economic Updates

October 6, 2012 For the first week of October, which is a historically notorious month for the stock market, things turned out rather well. The "Rock-em, Sock-em" employment report surprised everyone, and you would think that we were on our way toward an old-school, 1980s-style boom. Even more surprising was learning that an ex-General Electric Chairman actually Tweets! That's right, good-old Chainsaw Jack was out there on Twitter saying that Obama's "Chicago guys" were "cooking the books" in making the employment picture appear a whole lot rosier than it really was. Welch may have had a point, and the government statistics may have been mathematically massaged higher, but if Jack Welch is turning into a conspiracy guy, then maybe we are all conspiracy buffs now. Critics of Friday's positive employment report were quick to say that a lot of the jobs were part time, and that the report did not reflect the "real" economy, but it was a solid sounding report just the same. Stocks initially rallied, but faded as the day went on, and finished mixed and essentially flat for the day. Stocks may have finished mixed on Friday, but the broader week was a win for the major indices, as we saw weekly gains of 1.3% for the Dow, 1.4% for the S&P 500 and 0.6% for the Nasdaq. The decline of 0.3% of unemployment levels from 8.1% to 7.8% sounded great at first, but the fact that the stock market ended the day mixed and flat meant that investors are not convinced that "Happy Days are here again." The buzz was that a lot of the jobs were part-time jobs and that a lot of the jobs were government jobs, which means stocks will need more solid economic affirmation if they are going to rally higher from these already extended levels. Once again, the cynics and critics of the government's numbers were not hard to find on Friday. Some economists make reference to the U-6 employment data, which includes those workers who are under-employed, as well as those who have given up completely on looking for work. Apparently, this U-6 reference would make the "real" unemployment level up around 14.7%. This certainly counters the 7.8% number we saw on Friday, and it explains why so many newly ordained "conspiracy" buffs like Jack Welch are crying "foul" as to how the government comes up with its unemployment numbers. Aside from the employment numbers, the stock market has another arch nemesis to deal with next week, and that is the launch of earnings season for the past quarter. We all know how vibrant the stock market has been this year, and we all know how that should have been reflecting a buoyant and improving economy. Should earnings disappoint, we could see some big selling pressure, but then again, with the stock market flirting with multi-year highs, how bad could the downside be? Stocks have had the wind at their backs for more than three years, and their resilience to any bad news has been impressive. Maybe earnings season will prove to be better-than-expected, and maybe the economic numbers will continue to improve. That would definitely have the bullish camp smiling, but it is definitely a challenging thought. The economic numbers for a bullish earnings season just do not seem to be in place, so we will just have to see how the season unfolds. Global tensions are continuing to rise all over the world, and we are also seeing pockets of spiking prices from everything from fuel to food. We had a solid up week for stocks, though, so let's head into the first October weekend of fun, food and football on a positive note. Leaves are changing all over, and it is a beautiful time of year to take a breather. But be ready to get back to "reality" at a moments notice. The crosscurrents we have mentioned are still in place, and this is a tough market to navigate.