Markets Slide, But We Need Stocks to Hold
Monday, October 5th, 2009
By George Leong, B.Comm. for Profit Confidential
Triggering the slide was a softer than expected ISM index reading that gave traders a reason to head to the exits. The ISM index reading came in at 52.6, down from 52.9 in August and below the estimate of 54.0. The positive was that the ISM index has expanded for two straight months following 18 straight months of contraction.
In addition, the non-farm jobs data for September were terrible, with a loss of 263,000 jobs, well above the estimates calling for the loss of 180,000 jobs. The reading was also an increase from August. The unemployment rate jumped to 9.8% from 9.7%. Economists predict that the unemployment rate could rise to 10% in early 2010. The ADP private employment report showed the loss of 254,000 jobs in September, worse than the 200,000 estimate, but better than the 277,000 jobs lost in August. As we all know, without job security, consumers will not feel confident and hence will be hesitant to spend. The recent retail sales data has supported this, so we need to see the situation improve.
The jobs market is an integral part of the economy. The absence of net job creation will make consumers think hard about spending and this will impact the strength of the economic recovery into 2010.
Moreover, there is also the issue of the government’s economic stimulus spending that is nearing its end. The cash-for-clunker program to promote spending on vehicles has been hugely successful, but it is drawing to a close. In addition, the financial assistance for first-time homebuyers has been positive, but, again, what happens when it ends? It will be interesting to see how the economy does in 2010 after the stimulus. The hope is that the government has provided the stimulus to jumpstart the U.S. economy and gets it going. All we need to see is for consumers to increase their spending to drive the economy forward.
While the trading climate remains cautious, we need to see markets hold at the current levels and avoid another breakdown, like we saw last Thursday. We expect that trading will continue to waver this week, as traders get set for the start of the third-quarter earnings season on October 12.
The key in this market is to monitor your positions and take some profits on the big winners. The last thing you want is to see the big gains disappear. Always take some profits along the way, especially in a rising market.
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George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.
