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Valyooo (33.61)

US economy =! US stock market



July 09, 2011 – Comments (7)

Being that its 425 am on saturday I doubt many of you will see this.  I just don't understand why people think the stock market should crash when bad jobs reports come out.

Most of these companies 1) hire globally, so bad US jobs could just mean they are hiring cheaper labor elsewhere which is bullish.

2) their revenue comes from all over, so a slight uptick in unemployment will barely move their revenue

Maybe some small caps or us restaurant stocks should crash but not the big names like CAT, AAPL, BTU, XOM, etc

7 Comments – Post Your Own

#1) On July 09, 2011 at 4:36 AM, Raambo20 (< 20) wrote:

Unfortunately I am also up this late, but I think it is an interesting question. Personally I believe that stocks may have priced in rosier economic data, and the market assumed that we would be having a much more sustained recovery. 

Seeing that last months report wasn't very good either, Im not so sure, but if thats the case stocks are just moving downward as investors are once again shocked into reality. Coupled with this investors usually sell equities and buy safer assets after these dismal kinds of reports, so I think you are right in saying that multinational companies like XOM are still fine, but they were just hit by blanket selling of equities as a whole. 

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#2) On July 09, 2011 at 10:19 AM, Jaydetti (< 20) wrote:

You're right that the U.S. economy does not/will not correlate well with the stock market.

Corporate profits and investor psychology are the two main reasons for this, I believe. 

The fed funds rate has been at zero since December 2008! The fed funds rate has been at this level for over 30 months! At the last FOMC meeting, Bernanke made it clear that absurdly low interest rates are here to stay--at least for the foreseeable future. This language has the effect of implying to investors that the fed will continue to remain easy, and do what it can to prop up asset prices.

Many people who have been starved of yield in their money market and saving's accounts are being driven into equities. And the language used by Bernanke in June, says there is no end in sight. They see the stock market continue higher, while their savings and money market accounts have negative real returns. There are many people buying equities, just for yield, who are not evaluating future business and economic conditions. Do no underestimate this. Super low interest rates are fueling a large bubble in equities...

Corporate profits have continued to do well, despite the poor shape of the U.S. economy. And yes they are definitely the number one reason the stock market is up. However looking at past performance will NOT necessarily tell you what the future will be like. This year many major economies including the emerging market economies have been and are continuing to aggressively tighten to combat inflation. This is resulting in slower economic growth in these nations which will cut into the profits of U.S. exporters.  Stronger demand here in the states would help to make up for this lower growth overseas but the economic data out of the U.S. is indicating that if anything demand will decline and/or remain at relatively low levels for an extended period. 

You cannot get blood from a stone. If the consumer is still very weak here in the states and growth is much slower abroad, U.S. corporate profits must come down.

To take the most recent jobs data with a grain of salt would be completely foolish. This jobs report was not an anomaly by any means either. We have seen something like 13 straight weeks of initial jobless claims over 400,000. The previous month's report was also terrible, with 54,000 jobs created but not nearly as bad as this latest one with only 18,000 jobs created...If you dig into the details of the report it's even worse, with wages, overtime and temporary workers all declining, indicating very weak job growth (possibly negative) ahead. This is reflecting a trend, and a very concerning one at that. Soon enough this data will catch up to the markets in the form of much weaker earnings....Earnings expectations are through the roof by the way. So you better hope they don't disappoint.

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#3) On July 09, 2011 at 1:07 PM, HarryCaraysGhost (57.40) wrote:

Hey Man,

First off go to sleep I did'nt even know that there was a 4:25 AM.

Secondly heres a chart that I like-

Basically telling us that 2012 is the buying year. I don't know why everybody is in such a rush to get there. Chill out people let the market come to you.


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#4) On July 09, 2011 at 6:30 PM, ElCid16 (92.88) wrote:

Or 2012 is the selling year - one or the other. 

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#5) On July 10, 2011 at 4:31 AM, HarryCaraysGhost (57.40) wrote:


That was my point if everybodys selling that's when I would be buying.

I'm in no rush to get to that point though.

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#6) On July 10, 2011 at 4:37 AM, HarryCaraysGhost (57.40) wrote:

Ha Ha! I just looked at the time stamp and I just totally contradicted myself about the whole time thing.

To be fair it's 3:34 AM here and I just woke up in the middle of the night.

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#7) On July 10, 2011 at 11:33 AM, Valyooo (33.61) wrote:

Yeah I agree on the buying at some point next year but I think it willl be brutal first.

I responded to you more on the other blog, the MBA one.

And suuuure you just happened to wake up and blog at 3:34

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