VerySmartInvesting: Markets struggling for gains

Friday, June 5, 2009

Markets struggling for gains

Out of the gate, stocks shot up on what was considered a favorable unemployment report for May. But 2nd thoughts plus rising Treasury interest rates are causing markets to pullback. Dow had been up almost 100, taking it into the black for the year. Now the gain has been reduced to 45, advancers are barely ahead of decliners & NAZ is up only 1.

Banks started a little higher but are also slipping back:

S&P 500 FINANCIALS INDEX

Value
167.07

Change
-0.19

% Change
-0.1%

The high yield sectors (MLPs, REITs & junk bonds) are trading sideways on the unemployment news combined with the rising yields on Treasuries. Oil is flat (but still near 69, a multi month high), trying to assess implications for economies & oil in the future.

The unemployment rate jumped to 9.4% in May, the highest in more than 25 years. Only 345K jobs were lost, the fewest in 8 months. A smaller-than-expected reduction in payrolls suggests that the recession is loosening its grip. This was the 4th straight month that the rate of layoffs slowed. However, 14.5M remain unemployed & are having difficulty finding new jobs. If laid-off workers who have given up looking for new jobs or have settled for part-time work are included, the unemployment rate would have been 16.4% in May, the highest on records going back to 1994. Since the recession began in Dec 2007, the economy has lost a net total of 6M jobs. These numbers are quite large & not expected to recede for some time.

•Job Losses in U.S. Slow More Than Estimated in Sign Recession Is Abating

Bond prices plunged on the unemployment report. The yield on the Treasury 10 year bond shot up 14 basis pints to 3.85%. If the Federal Reserve is buying bonds, the increase in yields is even more troubling.

• Treasuries Decline After Report Shows Slowdown in U.S. Employment Losses

10-Year Treasury Yield Index -- 1 year