The drunk is having a particularly difficult time finding his way home this time. The market has now swung in opposing 1% directions on three consecutive days – a sure sign of near total confusion in the equity markets. Today’s swing comes courtesy of declining sentiment and weak jobs – the never ending thorn in this markets side.
Jobless claims rocketed higher to 496K and there were no administrative excuses behind this jump. Analysts had expected a reading of 460K. Continuing claims also climbed to 4.61MM. This doesn’t bode well for the monthly jobs report. Reports of weak weather were already contributing to a potentially poor jobs figure, but this data all but seals the deal. The recovery on Main Street has been delayed for yet another month. Anyone who is big on chart reading does not like the recent uptick in claims. It certainly looks like the trend is higher to sideways from here.
In other news, durable goods posted a gain of 0.3%, but was well below anlayst estimates of 1.3%. The durable goods data is notoriously volatile so it’s difficult to gauge too much from this data. The news is a bit mixed as transportation goods posted strong orders while non-transport related goods posted weak orders. The overall trend remains higher for now, however.
In other other news, the currency markets were once again shaken up as problems in Greece appear to be never ending. Ratings agencies are threatening downgrades of Greece as austerity looks like the country’s final resort. The Euro remains the worst house in a very bad neighborhood.
So where do we stand on this market? Uncertainty remains the name of the game and uncertainty is rarely good for a market. As earnings season comes to a close I fully expect the uncertainty level to pick it up a notch. There is very little positive news for investors to hang their hats on. For now, the macro trends of global rate increases, weak jobs, sovereign debt, regulation and the death of the reflation trade (thanks to the Euro) will dominate any short-term moves. In a partial mea culpa, I have been heavily in cash and fully hedged (though not short) from S&P 1,120 and remain so. I was tempted to remove hedges in recent weeks to gain upside exposure, but as I have said before, this downturn in stocks has a more sinister feel to it than the last few. Complacency settles in quickly only to be followed by dramatic bullishness. This sort of uncertainty is rarely a good sign for equities.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.