Whenever a family goes on a road trip, or perhaps a gentleman persuades a lovely female for a leisurely drive along a breathtakingly scenic place near a natural wonder of the world, there is the chance a bit of discord can enter in these best laid plans. As someone who experienced the phenomenon more than once, the uncomfortable words of the proverbial back seat driver can be a bit difficult for someone who, as Mr. Rubio has famously mentioned of the Donald, might be 'thin skinned.' So, when thinking about the big event in financial markets yesterday, the September jobs report, it was only natural there would be plenty of second guessing from market participants. Sure enough, when the anticipated number came in at 142 thousand jobs created, well short of the expected 190k, oh boy, the jackals were out in force. Way too much government involvement, too little clarity, too many voices, too much regulation, too much debt, and on and on they went. Very much, like, yes, the proverbial back seat driver. Imagine that.
The vast implications from the jobs report for all global markets was felt immediately. Here in the states, equity futures markets dropped dramatically, and the market opened down over two hundred points. Bond yields, which had been inching up, fell hard as the ten year fell below 2% to finish at a whopping 1.99% (down 2.6% on the day). The dollar, which has been strong, stronger, and strongest, sold off against nearly every major currency- the euro, the pound, the yen, and even the Brazilian real, which does not ever go up, ever, never. Even oil rallied, which is in the same camp as the real.
As market participants digested the report, it occurred to them, that, low and behold, maybe dreaded lift off was not inevitable, and the equity market not only recovered, but finished the day up two hundred points. If ever the schizophrenic nature of equity markets was on display in one day, yesterday was it. Looking forward, if yesterdays trend towards dollar weakness continues, it certainly will help the energy sector and anything tied to emerging markets. Financials will suffer some, because lift off is what that area has been patiently waiting for quite some time. So, in sum, we leave the week where we started the week, which is with uncertainty. The more things change, the more they stay the same.
So, where does this now leave us, especially those of us not in the back seat, but driving the car, er, portfolio? Well, for those of you friends who have been reading the blog for a while, you know the prediction of lower for longer, especially with respect to interest rates, has been a dominant theme. In the futures market, the heaviest odds have moved for interest rates to begin lifting in March of 16, versus some time this year. Some believe the jobs report was misleading and future revisions will show it, though when labor force participation rates hover at a bit above 60 ish, at nearly 10 year lows, hard to be impressed with job growth. It also means the idea of inflation popping up any time soon is totally wrong. The fed is fighting deflation, and has been for a long time. Many professionals have long accurately diagnosed the predicament. Those of you part time economists out there, or maybe friends of yours who fit the description, might do better to pack up the car for the annual road trip. Sorry if that one stings, no offense meant.
News from individual companies was sparse this week. Micron Technology Inc (NASDAQ:MU) reported a better than expected number but revenues were down because of weak personal computer demand. Dunkin Brands Group Inc (NASDAQ:DNKN) had it's annual investor day and reported they are closing 100 stores over the next few years. On a store base of 19,000, the news really is de minimus and when the stock lost 12% that day, it again shows the market shoots first and ask questions later. If you are trying to find mispriced assets, the constant negativity helps provide a fertile environment for these dislocations. As an example, a few years ago a company called Diamond Foods Inc (NASDAQ:DMND) was bashed on accounting concerns, and the stock fell from a high of 73 down to below 15 bucks. It reported earnings this week and it is considering breaking itself up. It closed yesterday above 30. Did we buy it on the dip? I don't usually kiss and tell, but no, I did not. However, it is reflective of the opportunities the market does present. Of course, you have to make the decision you want to own these companies, which is tough when the world is ending.
I noticed this week the Senate Banking Committee voted to approve energy exports after the South Dakota Senator made the motion. Earlier in the year, the same situation happened with the Energy Committee, only the motion was made by the Senator from Alaska. All other Democrats voted no, same as the banking panel. Naturally, the big O said he would veto both bills if they passed, and Democrats in the Senate filibustered the bill. Just a small example of why people are a bit frustrated at the current administration's hostility toward the energy industry. Of course, those on the other side of the aisle would just say the other party are back seat drivers. Thanks for reading the blog this week.