EmailWe said Tuesday that, after the huge rally last week, many participants might be inclined to keep their gunpowder dry until they saw the June employment report. Here we are today and, well, the bulls have been firing all week.
In just three trading sessions, the Dow is up 1.1%, the Nasdaq is up 2.0%, the S&P 500 is up 1.0%, the Russell 2000 is up 2.2%, the S&P MidCap 400 is up 1.7%, and the Dow Jones Transportation Average is up 1.3% at an historic high.
The volume during the run hasn't been particularly heavy. It is possible, as one of our senior technical analysts pointed out, that such a condition is about people not being willing to sell rather than people diving in. Either way, there has been no mistaking the market's prevailing disposition the last eight sessions.
That disposition is going to be put to the test today, however, as the June employment report is going to help the bears launch a counter-attack.
In brief, the report disappointed on all fronts.
Nonfarm payrolls rose a meager 18,000 (Briefing.com consensus +80,000); nonfarm private payrolls increased 57,000 (Briefing.com consensus +110,000); the unemployment rate rose to 9.2% (Briefing.com consensus 9.1%); the average workweek dipped 0.1 to 34.3 hours (Briefing.com consensus 34.4); and hourly earnings were flat (Briefing.com consensus +0.2%).
Separately, nonfarm payrolls for April and May were revised lower, with the former month going from 232,000 to 217,000 and the latter month going from 54,000 to 25,000.
The "real" unemployment rate, which factors for the total unemployed plus marginally attached workers and persons working part-time for economic reasons, jumped from 15.8% in May to 16.2% in June. That is tantamount to saying one in six workers over the age of 16 is either unemployed or underemployed.
The June report raises a number of questions, one of which relates to the worth of the ADP Employment Change report, which yesterday estimated 157,000 private sector jobs were created in June. That, frankly, is a minor concern in the grand scheme of things.
The biggest concern is the downshift in the pace of hiring activity in recent months and the lack of earnings growth. Those are meaningful headwinds for the economy and major headaches for politicians seeking re-election.
The S&P futures, which were flat ahead of the release, are down 19 points now and are trading 1.2% below fair value. If this indication holds, it suggests the gain for the S&P 500 this week is going to be wiped out at the start of trading.
Remarkably, this is the type of report that will get people talking about QE3 again, so it is possible we'll see a rebound attempt off the opening low. However, given how far we have come in the last eight sessions, this disappointing employment report will be a tough hill to climb going into the weekend.
--Patrick J. O'Hare, Briefing.com
Patrick J. O'Hare is the Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial please email researchsales@briefing.com.
