Big Day for Unemployment Tomorrow

unemployment rate stocksInvestors cautiously traded with mixed results, due to the high anticipation of upcoming employment data. However, the Dow was able to close up a few points and is getting ever so close to breaking that 11000 mark. Volume was critically low, possibly due to the holiday week as well as Spring Break, which tends to be a popular vacation time for many people. Tomorrow's ADP employment number, holds a bit more weight than most, due to its relationship with Friday's unemployment number.

Analysts are expecting a 200,000 increase in jobs for the month of March, however, it has also been estimated that over 100,000 of those jobs can be accounted for by government hiring for census workers. Considering that over 50% of Friday's number could be temporary government employees, investors are more likely to pay more attention to tomorrows ADP number than they usually do. Sure, Friday's number will definitely carry weight, as it always does, but expect a very inflated number.

Much of the recent rally has been in anticipation of a better month than we have seen recently. Retailers are expected to be performing better, home prices seem to be more stable, and the unemployment rate seems to have peaked. Really? All though some of these things may be true, it is always important to evaluate what is causing the performance and if it is sustainable. One thing is for sure, the housing market is looking at a rude awakening if the government stays with its plan to take away the tax incentive for home buyers, and here's why.

Despite recent data showing a smaller decrease in home values for January and February, more recent data is showing that we may start to see a double dip. The main fueling factors for home buying at this point in time is the tax incentive offered and the ability to secure a good loan. Without these two very critical factors, the demand for homes would most likely decrease over 50% (half the amount of buyers would be gone). If that were the case and then coupled with the amount of default and foreclosures that still exist in our market, we would sure to see another strong strike to home prices. Once again, this is predicated on whether the government does allow for nature to take its course, with no intervention. Whatever the case may be, people hoping that we had reached bottom for home prices, that is not the case.

Another aggressive dip in home prices is sure to bring down investor confidence. This is the one big factor frustrating me to go long more on equities. Sure, the government has pumped plenty of money to make things look sunny for now, but what happens when that runs out. This is why I continue to remain rather conservative and look for more solid investment opportunities in currencies, commodities, and energy. Definitely look for an aggressive move both tomorrow and Friday, as we see whether we beat or fall short of employment expectations. Happy Trading.


  1. Anonymous Says:

    FF, You should know by now, talking bearish,cautious or realistic is futile. It does not matter what the economics report say or not. The ADP was bearish but still they came in and bought the dip as they have on all dips. If there is a dissapointing report friday it will be a short lived sell off. Even the bad days, what few there are, seem to met with buyers especially at the end of the day, FF as I have said before months ago, there is no stopping it. The last Fibbonacci level for the S&P is 1220 area. I expect this to be breached as well. Maybe we have a blow off top like we did in gold and will cause a period of consolidation but no worse. There is just too much money out in the world that is always going to go to work somewhere.One dead smokey here. Full Margin Long!!

  2. Smart Says:

    Hey Anon,

    I am not an economist, but for the economy to be healthy, I think a major pullback is inevitable. I don't think we will have a double dip recession, but I am very cautious of the recent rally on low volume. It takes only two days to erase the whole gains you have made in a month (See early Jan.) The big boys have to rip off the retail investors to get the stock market going up and they definitely "CAN". I would not buy on margin. Margin calls make the pull back even uglier. That has always happened. I think the Canadian small caps are going to be the outperformers in the long run. There is too much misery and debt in the US that keeps me from investing there. Just be patient. A pull back is inevitable, but no one knows when exactly.

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