First Steps Toward Recovery

First Steps Toward Recovery

Third, employment growth continues and unemployment conditions are improving.  ADP reported employment gained 749,000 jobs in September, while initial claims for unemployment declined to 837,000, and continuing claims fell below 12 million.  Although these numbers still reflect serious economic dislocation, they do indicate an improvement.

Fourth, the Nonfarm Payroll employment numbers released on Friday, October 2nd showed a gain of 661,000, below estimates, but private payrolls gained 877,000.  The diffusion index (a statistic not usually highlighted) was 70.3% in September – meaning 70% of 285 industries added to employment.

Fifth, Consumer Confidence, as measured by the Conference Board, rose to a strong 101.8 while expectation numbers hit 104.

Sixth, the ISM Survey Index for Manufacturing was at 55.4 in September.  Any reading above 50 suggests the economy is growing.

Seventh, estimates for the annualized rate of growth in real GDP in the third quarter now range from 20% to 35%, following a second quarter decline of 34.7%.  This data for September reflects expanding GDP growth even in the absence of the $600 unemployment payment supplement from the Federal Government.

The uncertainties that have enveloped the markets have not gone unnoticed. Many investors remain unwilling to commit assets to the equity market and consequently a significant amount of cash remains on the sidelines – waiting for greater clarity. Despite all these unusual developments, the equity market appears to be absorbing the surprises, engaging in internal rotation, and responding favorably to positive earnings and guidance. Improving economic activity has helped the cyclically sensitive areas with good performance from the rails, truckers, airfreight, and logistics companies.  The machinery sector has also fared well. Also, after a poor performance in most of September, last week recorded positive results for the major indices.

In the weeks ahead there is likely to be more surprises and continued volatility.  It is October and an election year.  However, in the intermediate to long-term time horizon, factors such as diminished uncertainty, economic growth, earnings gains, and the power of monetary policy will likely emerge as the driving forces for higher equity valuations.

Third, employment growth continues and unemployment conditions are improving.  ADP reported employment gained 749,000 jobs in September, while initial claims for unemployment declined to 837,000, and continuing claims fell below 12 million.  Although these numbers still reflect serious economic dislocation, they do indicate an improvement.

Fourth, the Nonfarm Payroll employment numbers released on Friday, October 2nd showed a gain of 661,000, below estimates, but private payrolls gained 877,000.  The diffusion index (a statistic not usually highlighted) was 70.3% in September – meaning 70% of 285 industries added to employment.

Fifth, Consumer Confidence, as measured by the Conference Board, rose to a strong 101.8 while expectation numbers hit 104.

Sixth, the ISM Survey Index for Manufacturing was at 55.4 in September.  Any reading above 50 suggests the economy is growing.

Seventh, estimates for the annualized rate of growth in real GDP in the third quarter now range from 20% to 35%, following a second quarter decline of 34.7%.  This data for September reflects expanding GDP growth even in the absence of the $600 unemployment payment supplement from the Federal Government.

The uncertainties that have enveloped the markets have not gone unnoticed. Many investors remain unwilling to commit assets to the equity market and consequently a significant amount of cash remains on the sidelines – waiting for greater clarity. Despite all these unusual developments, the equity market appears to be absorbing the surprises, engaging in internal rotation, and responding favorably to positive earnings and guidance. Improving economic activity has helped the cyclically sensitive areas with good performance from the rails, truckers, airfreight, and logistics companies.  The machinery sector has also fared well. Also, after a poor performance in most of September, last week recorded positive results for the major indices.

In the weeks ahead there is likely to be more surprises and continued volatility.  It is October and an election year.  However, in the intermediate to long-term time horizon, factors such as diminished uncertainty, economic growth, earnings gains, and the power of monetary policy will likely emerge as the driving forces for higher equity valuations.