Thursday, August 5, 2010

Markets are lower on dismal jobless claims report

Dow dropped 56, decliners over advancers 3-2 & NAZ was off 21. Bank stocks sold off, taking the Financial back below 200. Over the last year, the graph shows, it has not strayed far from the 200 level.


Value 199.45 One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change -1.83 (-0.9%)

The Alerian MLP Index is up a tad in the 333s, close to its yearly high & also its record highs made 3 years ago. The REIT index dropped 2 to 210. Junk bond funds are little changed at their lofty levels. The VIX is up a fraction in the 22s. The Treasuries rallied, taking the yield on the 10 year Treasury bond down 3 basis points to 2.92%. The € is still strong at $1.32½.

Alerian MLP Index --- 2 weeks

Dow Jones REIT Index --- 2 weeks

VIX --- 2 weeks

10-Year Treasury Yld Index --- 2 weeks

Oil is doing quite well, hanging in above 82. But gold doesn't know what to do after its recent strength. 1200 is an important resistance level & it's holding the price below that level.

CLU10.NYM...Crude Oil Sep 10...82.10 ...Down 0.37

GCQ10.CMX...Gold Aug 10...1,194.00 ...Up 0.30

Gold Super Cycle!!
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Jobless Claims in U.S. Increase to Three-Month High

Photo: Bloomberg

Initial requests for jobless benefits rose last week to their highest level since Apr, not a good sign for stock markets! The Labor Dept said that new claims for unemployment rose 19K to 479K, versus expectations of a small drop. Claims have risen twice in the past 3 weeks. However, some of the increase stemmed from difficulties the gov has in adjusting for seasonal factors. The Labor Dept expected a large decline in claims last week when many auto companies usually shut their plants temporarily in early Jul. Claims were expected to rise during the shutdown & then fall. But this year GM & other manufacturers skipped the shutdowns, so claims didn't fall last week as much as expected. Before seasonal adjustment, claims fell 14K to 399K. The seasonally adjusted 4-week average of claims rose 5K to 458K. Applications for unemployment insurance have fluctuated between 450K-480K all year (shown in the graph below), after declining steadily last year from a peak of 651K in Mar 2009. In a healthy economy with rapid hiring, claims usually fall below 400K. The tally of laid-off workers continuing to claim unemployment benefits fell by 34K to 4.54M which doesn't include an additional 3.9M receiving extended unemployment benefits paid for by the federal gov. Disturbing numbers once again signal a dismal jobs report tomorrow.

Jobless Claims in U.S. Unexpectedly Climb to Three-Month High

Jobless claims - 1 year

One-Year Chart for Claims (INJCJC:IND)

# continuing to receive benefits -1 year

One-Year Chart for Unemployment SA (INJCSP:IND)

Gov-controlled mortgage buyer Freddie Mac said that the average rate for 30-year fixed loans this week was 4.49%, down from 4.54% last week, the lowest since Freddie Mac began tracking rates in 1971. The average rate on the 15-year fixed loan dropped to 3.95%, down from 4% last week, the lowest on record. These declines are attributable to low rates on the Treasury 10 year bond, the base for setting these interest rates. The last time home loan rates were lower was during the 1950s, when most mortgages lasted just 20 or 25 years. However, low rates have not sparked significant improvement in the weak housing market. Applications to refinance loans increased 1.3% & those to purchase homes increased 1.5%, according to the Mortgage Bankers Association.

Mortgage rates hit low of 4.49 pct. AP

A link below is provided for an excellent primer article on MLPs at They are the hottest sector since the markets recovered from their lows last year, but, as always, there are risks. The biggest one is they may have run too far, too fast which has dragged down the yield on the index to only 6.6%, low by its standards.

Limited Partnerships Let Wealthy Play Energy Tycoons in Quest for Income

The jobless report was discouraging. There are always problems with the numbers when comparing them one week against the prior week. But the general drift is not good, more jobs are not being created in significant numbers & the outlook for improvement is not good. Meanwhile Treasury rates are extremely low, not good for stock markets. For example the annual yield on the 2 year Treasury note is a meager 54 basis points & the rate on a 3 month bill is only 15 basis points (essentially zero).

Dow Jones Industrials --- 2 weeks

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