Employment No Longer the Big Catalyst

by Mitchell Clark, B. Comm.

The stock market seems like it’s trading on good news nowadays and this is a really positive development. For quite a while, nothing could stop the market from dropping, even earnings results that beat consensus estimates.

Currently, the market seems to looking beyond the reality of the labor market and is focused on housing data and construction spending. The employment situation is getting worse, but, quite surprisingly, investors seem to be ignoring this reality.

I can only surmise that the high volume of cash sitting on the sidelines is responsible for the current buying activity in stocks. Investors have decided that a bad employment situation is a known expectation and they are now looking beyond this factor.

I still think that the current interest in stocks is due mostly to the oversold situation in the market early in March. Right now, some investors are buying because the rate of bad news is slowing— even if only slightly.

This is perfectly illustrated by the Institute for Supply Management’s latest manufacturing index. According to the data, for the 14th straight month, the manufacturing sector has
contracted, but just last month, the rate of that contraction slowed a bit. According to the Institute, its manufacturing index rose to 36.3% last month, up slightly from 35.8% in February. A reading below 50 means a contraction in the industry.

So I think that the market wants to latch onto any good news, even though that news still doesn’t represent growth. There is continued good news for the economy and consumers, because the price of a barrel of oil is holding under the $50.00 per barrel level. This is an added bonus to the marketplace.

I don’t have any defined sense as to where the current stock market is headed. Rationally, I still expect another major pullback in stock prices and that the current action in stock prices is still just the continuation of a bear market rally.