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Friday, January 6, 2012
POSITIVE JOBS NUMBERS ARE NOT ENOUGH TO PUSH UP MAJOR MARKET ETFS
Although unemployment fell to a 3-year low today, it didn’t do much to catapult markets as the S&P 500 fell 0.25%. However, the NASDAQ had its best week in 6 weeks.
Not only did tech stocks have a great week, but so did financials, which took a drubbing in 2011. For instance, Financial Select Sector SPDR (XLF) gained 3.2%.
As seen with the Euro dropping to $1.27/Euro, European discord still reigns supreme as the driving factor on investors’ minds and as indicated by PIMCO’s Mohamed El-Erian, who believes Europe is at a turning point to try and save itself. Furthermore, the 10-year Treasury dropped to a yield of 1.96%, illustrating the fear of European contagion spreading.
The major news of the day was the decrease in the unemployment rate to 8.5%. According to the U.S. Department of Labor, 200,000 jobs were added, surpassing expectations.
This is surely a positive trend, but there are still a significant number of part-time workers and marginally attached workers. Also, the labor force participation rate remains low at 64.0%. See the Bureau of Labor Statistics report for more specific info.
With housing a major concern as well, the Fed has suggested exploring alternative measures to improve the housing market. Seeing as zero-interest rates still have failed to boost the economy, Bernanke is coming to grips with the need for other solutions.
High borrowing costs in Italy are now raising questions about whether Italy can stay afloat financially. With its 10-year now at 7.09% and over $2 trillion in debt, I’m afraid that a bailout on top of austerity measures will not be sufficient. Italy may arguably be too big to fail but it may also be too big to bail at the detriment of other Eurozone members.
Looking at Europe as a whole, the 4th quarter will probably be another disappointment. Despite the holiday season, retail sales and consumer confidence fell. Whether the recent ECB measures to boost bank lending can help spur the economy is the big unknown.
Today’s unemployment figures are a glimmer of hope, but Europe is without a doubt the most pressing concern on our minds. Increasing equity ETF exposure still doesn’t make sense for the most part with the exception of a few sector ETFs. As the first week of 2012 has come to an inconclusive close, perhaps next week will be more revealing of how markets will trend.
Have a great week.
READER Q & A FOR THE WEEK
All Reader Q & A’s are listed at our web site!
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A note from reader Kent:
Q: Ulli: In taking positions in bond funds/ETFs, if bonds are in an uptrend, do you tend to enter bonds, pretty much at any point, and use the 5% stop rule to keep you out of trouble?
It appears that waiting for pullbacks might prove to be harder with bonds, at least in recent history, when they’ve been so strong. I’d be interested in your thoughts on this, when you get a minute, as my experience with bonds and bond funds is more limited.
A: Kent: Yes, you are correct. If you plan on buying a bond ETF, simply purchase it on a day when it’s down. That’s how I do it as I have not found a good way to buy on pullbacks.
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