The Tycoon Report

The Market's Labor Day Sale May Be Over

Monday, September 7, 2009 | Barbara Cohen

For the past two weeks, those of us trading futures, and those trading stocks and Exchange-Traded Funds (ETFs), have experienced a slowdown in trading. 

The market has been very much in a tight trading range, cushioned by extremely light trading volume.  Why?  By tradition, institutional traders take these two weeks off and return after the long holiday weekend.

If you opened the newspaper, you would see all the "Labor Day Sales" advertisements.  Similarly, for two weeks, the market experiences its own "Labor Day Sale."

The Beginning of the (Year) End

Friday, Sept. 4 was a good example.  The S&P 500 E-Mini price closed right where it closed throughout most of August.  On Aug. 13, it was at the exact same price. 

Trading volume on the S&P 500 E-Mini on Friday was very light, well-below 2 million shares, despite the most important news item being released at 8:30 a.m. ... the unemployment rate.

But as with all sales, they only last for a short period.  So too, will the market's Labor Day sale come to a halt -- just wait until Tuesday. 

The S&P 500 trading volume comes roaring back after Labor Day. Why? Because, for the last quarter of the year, institutional traders who drive market action concentrate on just one thing ... end-of-year bonuses. 

Nothing else matters.  Performance is all about what they did at the end of the year.  And the day after Labor Day marks the beginning of the end of the year.

Watch the trading volume begin to pick up the rest of September, and all through October, November and through the beginning of December.

Will the Market Run ... or Run into Trouble?

There is only one more stumbling block that holds market action down ... getting through Sept. 23, when the Federal Open Market Committee's (FOMC) interest rate announcement comes out at 2:15 p.m. Eastern. 

What will the Fed do?  Will it keep interest rates at this level or will it start to raise interest rates back up?  The Fed has a lot to digest right now.

In particular, this past Friday, the 8:30 a.m. news showed fewer people added to the unemployment roster.  That's a good thing.  But, the unemployment number ticked higher to 9.7%. 

Why the disparity? 

While there may be fewer people going onto the unemployment rosters, the ones currently receiving compensation benefits have not been able to find jobs.  This was confirmed by two reports. 

The Challenger Job Cuts Report that shows new corporate layoffs spiked.  And the Institute for Supply Management's (ISM) Manufacturing Number came out at 52.9, well-above expectations. 

The ISM number shows that corporations have reduced staffs and yet are still able to exceed profit expectations. So, don't be looking for corporations to be hiring anytime soon. 

Pre-Labor Day Retail Sell-Off

The monthly retail report looked dismal as well.  The after-summer August sales simply did not happen and retail stocks sold off once again.

All this data leaves the Fed in a quandary. What to do -- raise interest rates or keep them at record lows?  Expect market volume to be light the Monday, Tuesday and Wednesday morning of the week that the Fed makes its decision. 

As we know, it's all by tradition.

If you listen, you can almost hear the "Fiddler on the Roof" singing, "Tradition, Tradition." ...





Barbara Cohen
Contributing Editor
The Tycoon Report



THURSDAY, SEPT. 10   

8:30 a.m. Initial Claims

    * Importance (A-F): This release merits a C .
    * Source: The Employment and Training Administration of the Department of Labor.
    * Release Time: 8:30 a.m. each Thursday (data for week ended prior Saturday).
    * Raw Data Available At: http://www.dol.gov/opa/media/press/eta/main.htm

Initial jobless claims measure the number of filings for state jobless benefits. This report provides a timely, but often misleading, indicator of the direction of the economy, with increases (decreases) in claims potential signalling slowing (accelerating) job growth.

On a week-to-week basis, claims are quite volatile, and many analysts therefore track a four-week moving average to get a better sense of the underlying trend. It typically takes a sustained move of at least 30K in claims to signal a meaningful change in job growth.

Highlights

    * Initial claims again disappointed the consensus as claims fell a minor 4K from last week to 570K in the week ending Aug. 29. Consensus expected claims to decline to 564K.

    * Initial claims has bounced between 550K and 600K since the beginning of June and don't look to be trending down anytime in the near future.

    * The 4-week moving average increased by 4K to 571.3K.

    * Continuing claims also disappointed the consensus as claims rose approximately 100K to 6234K from 6142K. Consensus expected continuing claims to decline 12K.

    * We've been expecting continuing claims to trend downward over the last few weeks as workers run out of unemployment benefits. An increasing number of continuing claims only verifies the terrible situation the labor market is in.

Key Factors

    * If you are to believe that the U.S. economy is out of the recession and in a recovery period, then the recovery is most definitely a jobless one. For a non-jobless recovery to take place, we should expect to see claims numbers rapidly receding, which is not happening.

    * For example, during the 1980-'83 recessionary period, claims hit its peak in September 1982 with roughly 670K. Three months later, as the recovery took hold, initial claims fell to 534K and then declined below 500K by April 1983. In the current recession, claims peaked at roughly 670K in March 2009, but three months later initial claims only declined to 617K. At 570K today, claims are roughly 100K more than they were during 1983.

Big Picture

    * New claims continue to fall within the 550,000-600,000 range, well above the peak of 400,000 during the last recession. As major companies finish their labor restructuring, many of the newly unemployed are coming from smaller businesses. This tends to cause more hardship on Main Street as many of these workers are unprepared for their job loss.


8:30 a.m. International Trade

    * Importance (A-F): This release merits a C .
    * Source: The Census Bureau and the Bureau of Economic Analysis of the Department of Commerce.
    * Release Time: 8:30 a.m. Eastern around the 20th of the month (data for two months prior).
    * Raw Data Available At: http://www.census.gov/foreign-trade/www/press.html

The trade report is most widely watched for trends in the overall trade balance. But trends in both exports and imports of goods and services bear watching as well. The export data in particular are important to watch for indications that a strengthening competitive position at home and/or strengthening economies overseas are boosting U.S. growth.

Imports provide an indication of domestic demand, but given the severe lag of this report relative to other consumption indicators, it is not particularly valuable for this purpose.

Highlights

    * The U.S. trade deficit widened in June to -$27.0 billion (consensus -$28.7 bln) from -$26.0 billion in May.

    * The breakdown of the report could be construed as good news since it fits the view that global trade is recovering from the depths of the downturn seen at the end of 2008 and the early part of 2009.  To this end, exports increased $2.4 billion to $125.8 billion -- the second straight monthly increase -- while imports increased $3.5 billion to $152.8 billion.

    * The real trade deficit narrowed to -$35.95 billion from -$36.27 billion in May.  The June number brings the Q2 average to $37.45 billion versus the prior average of $38.19 billion.

Key Factors

    * The last time imports increased on a month-to-month basis was in July 2008.  This points to an improved situation in the U.S.  It would be remiss not to add, however, that imports are still down 31% from the year-ago period, so we won't get carried away extolling the recovery process.

    * The improvement in the real trade deficit in June will be thought of as a positive when contemplating revisions to the Q2 GDP data.


FRIDAY, SEPT. 11

9:55 a.m. University of Michigan Consumer Sentiment Index

    * Importance (A-F): This release merits a B-.
    * Source: The University of Michigan.
    * Release Time: Preliminary: 10 a.m. Eastern on the second Friday of the month (data for current month); Final: 10 a.m. Eastern on the fourth Friday of the month (data for current month).

The Michigan index is almost identical to the Conference Board Consumer Confidence index, though there are two monthly releases, a preliminary and final reading. Like the Conference Board index, it has two subindexes -- expectations and current conditions. The expectations index is a component of the Conference Board's Leading Indicators index.

Highlights

    * The Michigan Consumer sentiment dipped lower in August with a final reading of 65.7, down from 66.0 in July. However, the index came in higher than consensus expectations of 64.0.

    * The current conditions index declined from 70.5 in July to 66.6 in August. The decline is fairly shocking considering the amount of attention the economic recovery is getting in the media.

    * The economic outlook index rose to 65 from 63.2.

    * Inflation expectations for both the 1-year and 5-year outlooks fell to 2.8% from 2.9% and 3.0%, respectively. There is still considerable fear in the market that inflation will hemorrhage out of control. The fairly low consumer expectations will provide some relief to the market.

Key Factors

    * The consumer confidence numbers are a very poor indicator for predicting consumer spending. Even though the sentiment indicator was weaker in August, it does NOT change projections of stronger PCE spending.

Big Picture

    * Sentiment readings are a reflection of a variety of events rather than an accurate tool for forecasting consumer spending.  Gas prices and political events can have an outsized impact on sentiment.  In general, these data are of very little economic value.

Source: Briefing.com