Jobs Numbers Are Good for Stocks

02/16/2010 11:49 am EST

Focus: MARKETS

Ian Wyatt

Publisher & Chief Investment Strategist, Wyatt Investment Research

Ian Wyatt, editor-in-chief of Ian Wyatt’s Recovery Portfolio, says the market sold off on the recent jobs report, but an improving labor market and economy are good for equities.
 
The start of 2010 is reminiscent of the beginning of last year, when investors clicked on the sell button, moving out of stocks and commodities in favor of safer investments like cash. With selling outpacing buying activity, the Dow Jones Industrial Average and Standard & Poor’s 500 index have fallen 8% from their early January highs.

Not surprisingly, the unemployment numbers continue to weigh on the stock market, with investors finally paying attention to this key indicator for the health of the US economy. In 2009, investors seemed to shrug off every monthly rise in the official unemployment rate, which topped out at 10.2% in November.

But news that unemployment actually declined to 9.7% helped spook investors. You would think the market would wake up to the unhealthy economy when the jobless rate was rising. But instead, investors continued selling stocks.

Stocks rose nonstop for ten months, with total gains of 70% from the March lows to the recent high in early January. The rise was nearly a straight line of consistent gains week after week. In fact, the biggest pullback along the way was only 7%, and that was way back in early summer.

Investors must remember that the market's recovery will be marked with pullbacks along the way. [Stocks are] now trading back at the same level as they were in November. They're also trading at the same level that they were back in 1998—a dozen years ago.

Still, it finally looks like the employment trend is improving.

Nonfarm payroll was down 20,000 in January. Meanwhile, temporary help services added 52,000 jobs last month and 250,000 since a low point in September.

The rise of temporary employment shows that economic activity is indeed picking up. While these jobs often aren't very desirable due to the lack of benefits and job security, they may be a leading indicator of future full-time jobs that might be created.

But there is even better news. The Conference Board, a nonprofit global business organization, reported that online job demand is rapidly rising. The board reported that in January there was an increase of 382,000 job vacancies. And over the last three months, an additional 750,000 new jobs have been posted online. Currently the total job vacancies advertised online [are] over four million.

For the first time since January 2009, I'm actually seeing some of those green shoots on the employment front. Four million advertised jobs is a clear indication that companies are starting to consider hiring once again. They won't fill all of these new job vacancies today or tomorrow, but the significant up tick in jobs advertised online may shed some light on what's to be expected in the coming months.

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