Good news on jobs hurts Treasuries, oil, stocks; crushes gold

12/04/2009 4:06 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

All it took was an unexpectedly strong unemployment report.

Following the Bureau of Labor Statistics release of numbers showing the economy lost just 11,000 jobs in November rather than the expected 125,000, the Dollar Index broke above its 2009 trend line and the Friday November 27 rebound high.

That was enough to negate an initial rally in commodities and stocks on the good news on the economy. Oil fell to $75.65, a drop of about 1%. Gold was crushed, falling to $1169 an ounce, down 4%. Prices for Treasuries with maturities of two years and greater also tumbled.

Why did good news on the economy turn into bad news for commodities, gold, Treasury  bonds, and stocks?

Because it increases odds—at least in the minds of traders--that the Federal Reserve will raise interest rates sooner rather than later. Measured by prices in the Fed funds futures market, odds that the Federal Reserve will raise interest rates by its June meeting rose to 53% after the unemployment report from 31% two weeks ago.

Some on Wall Street rushed to say that the November unemployment report marked a trough in unemployment.

That seems a just a tad premature to me. This is just one-month of numbers and the end of the year jobs reports are historically subject to relatively large errors because it is so hard to accurately adjust them for seasonal hiring. How can statisticians accurately know if a job was the result of a permanent improvement in hiring and not a seasonal effect? They adjust the raw numbers by looking at effects in other years but that’s especially tough when the year in question, 2009, isn’t very similar to most years.

But premature or not, the November numbers have Wall Street increasing its bets that the Great Recession is over.

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