Disappointing Jobs report for the US? Not Really!

   Schwaben Blog

February 05, 2016

 

 

Weekly Statistics:

  Today Week Ago Year Ago
  05-Feb-16 29-Jan-16 05-Feb-15
       
S&P TSX 12,763 12,822 14,384
S&P 500 1,880 1,940 2,044
DJIA 16,205 16,466 17,780
OIL $31.00 $33.20  $68.86
USD vs CAD 0.7202 0.7112 0.8503
Gold $1,174 $1,121  $1,174

 

Another volatile week for US equities ended with S&P 500 losing more than 3% for the week. The disappointing jobs report released on Friday brought further negative momentum to already fragile markets. But a detailed look into that report brings out some positive takeaways. The jobless rate dropped to 4.9%, matching the Fed’s median forecast for the long-run sustainable level of unemployment or “full employment”, and continuing the most impressive trend in U.S. economic data. It is the first time since February 2008 that the unemployment rate has dropped below 5%.  The hourly wages also rose by 0.5% in January, the largest increase since January 2015 and beating market expectations by 0.3%. The gain in hourly wages will certainly help the US economy move closer to their inflation target of 2%.  The US economy is 70% consumption driven and with extra savings from lower oil prices, consumers will eventually put more money into the economy. So far we have not seen a substantial improvement in consumer spending but as Deutsche Bank recently said in its research report “Lower oil has an immediate impact on energy sector and the positive effects on the economy usually appear with a lag”. Another explanation for lower consumer spending could be that consumers are paying down their debts instead of spending. According to a Morgan Stanley report, consumer balance sheets are in great shape, with the lowest debt-to-disposable income ratio since 2003. As far as earnings recession goes, if we strip out the energy companies from the S&P 500, the blended earnings will improve from -3.8% to 2.2%. This shows that except the energy companies, the US corporations are doing well and are financially stable.

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Oil Prices and the US Equities!!

   Schwaben Blog

January 29, 2016

 

 

Weekly Statistics:

  Today Week Ago Year Ago
  29-Jan-16 22-Jan-16 29-Jan-15
       
S&P TSX 12,822 12,389 14,384
S&P 500 1,940 1,906 2,044
DJIA 16,466 16,093 17,780
OIL $33.20 $32.25  $68.86
USD vs CAD 0.7112 0.7081 0.8503
Gold $1,121 $1,098  $1,174

 

US stocks closed sharply higher on Friday, booking a second straight weekly gain but posting the worst January performance since 2009. The main driver for Friday’s rally was a surprise decision by the Bank of Japan to push a key interest rate into negative territory that could also push the Federal Reserve to ease up on its plans to steadily raise interest rates. Even after this rally, major indices have still lost more than 5% in January. St. Louis Fed President James Bullard recently mentioned that the continuing plunge in oil prices could impact the U.S. central bank’s decision-making process. Oil prices have lost nearly 18 percent in January, and causing worries that the global economy will enter a prolonged slowdown. As of Friday, 40% of the companies in the S&P 500 have reported their Q4 2015 earnings and 72% of those have reported above their mean estimates. For Q4 2015, the blended earnings decline is -5.8% and if the index reports a decline in earnings for Q4, it will mark the first time the index has seen three consecutive quarters of year-over-year declines in earnings since 2009. Out of the 10 sectors in S&P 500, four sectors are reporting year-over-year growth in earnings, led by the Telecom Services and Information Technology sectors, and six sectors are reporting a year-over-year decline in earnings, led by the Energy and Materials sectors. The blended earnings decline for Q4 2015 is -5.8%; excluding the Energy sector, the blended earnings decline for the S&P 500 would improve to positive earnings growth of 0.5% from a decline of 5.8%, a clear indication of the magnitude that the decline in oil prices has had on the indices.