Market Talk

US stocks rally yet again, with the Dow logging its eighth gain in the past 10 sessions, as investors seize upon signs of improvement in the jobs market.

DJIA jumps 72 (0.6%) to 12351, within hailing distance of its year high; S&P 500 rises 9 (0.7%) to 1328, Nasdaq Comp gains 20 (0.7%) to 2777. NYSE volume again low. Stocks may have run into technical resistance, with the 1330-area a resistance level for the S&P 500. Still, the three major indexes have all risen for the eight of the past 10 sessions, and the S&P’s two smaller indexes, the 600 smallcap and 400 midcap, are faring even better. The former is at its highest since October 2007, and the latter is at its highest ever.

Also, the Russell 2000 is 15 points away from its all-time high from July 2007. Are we feeling bubbly yet?

ADP pegs March jobs growth at 201,000, and while this report can diverge sharply from official government numbers, it’s enough to get the market excited — and it’s in a pretty excitable mood anyway these days. Of course, the big report comes Friday from Uncle Sam, and of course, that big report will be revised next month, and revised again, and revised again in a year.

But data points always provide a trading opportunity for the market, no matter the bigger picture. What the economy needs more than one data point is a sustained level of both job and wage growth. When you see those two things on a sustained basis, you can start to talk about having some real confidence in the economy.

The stock rally continues unabated, at least as long as the easy money continues unabated.

The mood around the globe remains positive for stocks, with strong gains in Tokyo and Hong Kong overnight, and European markets currently adding to recent gains.

London and Paris trying to make it six straight positive sessions and nine of last ten. DJIA closed yesterday at its highest level in six weeks.

US stocks have performed well during the weeks leading into quarterly earnings periods as investors anticipate strong results, and we’re entering that zone right now.

Thin day for data, just ADP’s gauge of March private payrolls due at 8:15am ET. The big check-processor pegged February’s jobs growth at 201,000, a shade below expectations of 205,000. The problem is ADP’s numbers have shown some wild divergences with the government report that’ll come Friday, but it is directionally at least a positive.

S&P futures up 6.30, DJ futures up 48. Ten-year note’s down to 3.48% after hitting 3.50% earlier this morning. Crude futures are a bit lower at $104.62/barrel.

Meanwhile, DJ’s Tomi Kilgore notes stocks are looking at something of a breakout:

Dow industrials set to open above the pivotal 12250-12285 resistance range that capped the index the previous three sessions, and in five of the first seven of the month. Getting through it intraday is one thing, but it’s not a clear breakout unless the DJIA closes above it. If it does, a move above the Feb. 18 intraday high (12391) would be a formality, and bulls will start talking about the May 2008 highs around 13130. If the DJIA falls back within that range, however, a test of the 50-day moving average (12097) becomes likely.

Sorry about the light posting today, just got caught up in other news-related reporting issues. Anyhow, here’s the market wrap:

US stocks close higher after a shaky morning, taking its good time to decide that this morning’s data points were good after all.

DJIA adds 32 (0.3%) to 11723, S&P 500 gains 6 (0.5%) to 1277, Nasdaq Comp rises 21 (0.8%) to 2702. But again, bigger moves lie elsewhere. Euro drops sharply vs dollar again, and Treasurys slide, sending 10-year yield back near 3.50%.

ADP’s take on jobs markets, that it added nearly 300,000 jobs in December, is so high even the reports creators question it. ISM says services sector expanded in December, although jobs index slid.

That’s the real story today: ADP’s eyebrow-raising number versus what the ISM report said. ISM’s jobs index slid to 50.5 – barely above the 50 level that generally indicates expansion. So how could the economy have added as many jobs as ADP said if the services sector, where the vast majority of the jobs are created, is barely creating any jobs?

Even Macroeconomic Advisors, the outfit that compiles the ADP data, questioned the data. While the firm says the data is absolutely correct, it believe the seasonal adjustments may have overstated the strength in hiring. But firm still believes Friday’s BLS report will show improvement.

It ought to; the November report was a dog. What’s almost funny is that that report was so far off expectations, in a bad way, most folks on the Street dismissed it outright. But today’s report, which was just as far off the mark, just to the upside, was hailed almost universally. A game changer, we saw it called, among other gushing superlatives.

Street denizens boosted their forecasts for Friday’s report, and the consensus number now is 150,000, up from 140,000.

Even if the ADP report is spot on, we’d need to see 300,000 jobs created every month for a couple of years to get the unemployment picture back down to an acceptable level – without so much as a single economic meltdown anywhere on the planet.

Journey of a thousand steps and all that, you know.

We got a lot of jobs-related data this morning, as the Wednesday before the monthly BLS report has become a sort of de-facto run-up to the queen mother of data points. The market took it all as very good, of course, since it was already in full-on rally-mode. The reports were generally positive, to be sure, but didn’t show the kind of strength necessary to spark expectations that the economy is going to stop scudding along and start growing strongly. That’s important to keep in mind.

We’re just spinning wheels here, folks. The reality is this: the unemployment rate isn’t going anywhere meaningful any time soon. The Fed knows this. Anybody who actually works for a living knows this. Sure, the big, massive, historic layoffs are over. But companies are now in the tweaking stage. Notice anybody getting laid off where you work? It comes in dribs and drabs now; a few jobs here, a few positions eliminated over there.

It’s more than drips or drabs if you’re, say, a Newark, N.J., police officer.

Companies in a number of industries (See table below) have boosted their profit per employee, according to data from the research firm Sageworks. This means companies are now making their profits using fewer employees, and unless demand rises such that they’re going to lose business by not having enough staffers around to produce enough widgets, companies aren’t going to start hiring, because to start hiring means to cut into their profit margins. Sageworks’ Melinda Crump wrote this:

Industries have right sized and adjusted for slowed sales by cutting expenses that include employee costs. Fewer employees now mean that these industries have increased efficiency over slowed sales and may not be looking to hire quickly if the economy sees only modest growth. Companies have been adjusting to slower sales for a while now, and strong growth is the only push that would call for a scaling of economies and increases in payroll back to 2006 levels…some industries such as manufacturing and construction may be evaporating, shrinking the total work force for years to come.

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That ADP report this morning really cooled the stock market’s heels, although the little buggers seem to be getting their bearings back here lately. Meanwhile, the action continues to be in the forex market, where the dollar is getting beaten like a rented mule. Here’s the sober take on it on the Markets Hub.

QE2 can create money out of thin air, apparently, but it can’t create jobs of out thin air, evidently, and that is the crux of the limitations of and problems with continuing central-bank tinkering at this state of the game.

ADP, the big check-processing outfit, gave its take on the September jobs picture, and it wasn’t pretty. The firm estimated the economy shed 39,000 jobs in September, below the Street view that it would report a gain of 20,000. Among a work force of 150 million some-odd workers, that’s not a big number either way, although psychologically it hurts more to see a negative number than a positive one. Now, ADP’s methodologies don’t exactly align with the BLS, which reports the “official” numbers on Friday, but they’re not that far off, so you can expect another weak report Friday.

This is the entire problem, Mousketeers. Jobs aren’t being created, not anywhere on the level needed. Jobs are not being created because demand is not there. Maybe, in a world where the 10-year yield is at 7% or 8%, and mortgage rates are running even higher, the Fed can have success in goosing demand by lowering rates. But with the 10-year currently, right now, this morning, at 2.42% — close and getting closer to its all-time low of 2.40% 2% hit at the depths of the crisis — with mortgage rates already at all-time lows, what are lower rates going to do? Not much.

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US stocks burst out of the gate in September, with the DJIA posting its best one-day gain since early July after a key gauge of the manufacturing sector shows surprising strength.

DJIA surges 255 (2.5%) to 10269, its biggest one-day gain percentage-wise since July 7. S&P 500 jumps 31 (3%) to 1080, Nasdaq Comp rises 63 (3%) to 2177. NYSE volume is 4.5B shares traded, not bad volume for a session a couple days ahead of Labor Day.

Stocks rose sharply early, as traders were apparently emboldened after the S&P held the 1040 level again yesterday. But the ISM reading, coming in not just better-than-expected but actually better, was like rocket fuel. September has a reputation for being a bad month for stocks, but it also often starts off well. It did today.

Now, that lede (newspaper jargon for “lead,” the top of the story, not  be confused with lead, the material they used to use to fill the letter blocks when printing the paper,) I wrote is without a doubt a concise, accurate assessment of today’s session, if I do say so myself. However, I find it hard to believe this rally was built on anything more lasting that Friday’s rally, which had just about completely melted away by yesterday’s closing bell.

Briefly, let’s look at some of the news today. There was that Chinese PMI story. China’s official PMI rose to 51.7 from 51.2. That sparked the global stocks rally. Now, that’s a very minor move, one that still leaves the index too close to the 50 level for comfort in a diffusion index that measures not actual change but the rate of change.

Still, with the proverbial new money pouring into the market, that was enough to get things going. The market totally ignored a trio of private-sector takes on the jobs market, the ADP, TrimTabs and Challenger Grey reports. ADP said private-sector jobs fell 10,000, TrimTabs said it was down 65,000. The Challenger report was actually bullish, they said job cuts fell to a decade low. Still, those first two do not presage a good number Friday when the BLS reports the nonfarm payrolls. But no matter, because the ISM’s take on US manufacturing came in at 56.3, up from 55.5, when it was expected to slide to 52.

What makes it so surprising is that absolutely everybody expected it to fall, given that the regional Fed surveys have been uniformly depressing. So, is the ISM number a one-off or some counter-trend? I just don’t know yet, but I’m very suspicious of the ISM number. It just doesn’t fit in with anything else we’ve been seeing.

Lastly, we’ll leave you with this, a tidbit that John pointed out to me just now. As bad as August was for stocks, May was that much worse, with the DJIA losing better than 8%. What’d the Dow do on the first trading day in May? It rose, about 143 points. Over the next four sessions, it lost 771 points, a time frame that included the now-infamous Flash Crash.

Stocks are rallying after a surprisingly (very surprisingly) strong manufacturing report, which added fuel to what was already a fire. But beware, September (and most months, really,) has a tendency to start off strong – and end very weakly. We break it all down on this morning’s Markets Hub.

Job creation remains tepid at best, as evidenced by ADP’s report showing only 42,000 private-sector jobs were added in July. But that may be the best news for investors, right now.

A surprisingly strong monthly jobs report on Friday might bring about calls that the economy’s recovering better than most expected. Optimists will seize on this and say the Fed should start thinking about tightening rather than loosening monetary policy, not exactly the best medicine for the stock market. On the flip side, an extremely weak jobs report will bring all the double-dip callers back to center stage, which also isn’t good for stocks.

But a July jobs report that’s not too good, but not too bad, may be the best medicine for the stock market, which remains flat year-to date, as the current trading environment of record corporate profits and near-zero interest rates would stay intact for the foreseeable future.

It’s easy to glean evidence from this morning’s ADP report to estimate what Friday’s jobs data will look like. Unfortunately, there’s not much to be positive about. From Dow Jones’ Kathleen Madigan (subscription required):

Weak labor markets remain an obstacle to a recovery. Private payroll gains increased by only 42,000 in July, as large businesses added no new workers, according to data released Wednesday.

July’s private-sector job gain was the sixth consecutive increase, according to a national employment report published by payroll giant Automatic Data Processing Inc. (ADP) and consultancy Macroeconomic Advisers. But the pace of hiring has averaged only 37,000 during those six months.

“Firings have stopped but strong hiring is not yet happening,” said Joel Prakken, chairman of Macroeconomic Advisers, which compiles the survey for ADP. “There is no sign of acceleration [in hiring].”

Where we go from here is a big mystery. But if the jobless claims throughout the last year or so are any indication, the labor market’s likely to linger around limited growth for the time being.

“It’s easy to think that more of the same is on tap for the foreseeable future,” James Picerno writes at The Capital Spectator, which means the jobs market is still vulnerable to a significant setback.

For Friday’s jobs report, economists are expecting 100,000 private-sector jobs added. “That’s better, but not enough to blow fears of the new normal,” Picerno says. “Of course, the possibility for a positive surprise of some magnitude keeps the bulls bubbling.

“Technically, the labor market is improving. But the margin of safety between growth and contraction is still uncomfortably thin.”