Monday, September 5, 2011

US Markets Tumble on Ugly Jobs Report

US markets fell on Friday on a US job report that showed zero job growth for August, which was significantly worse than the gain of 75,000 jobs that economists expected. As a result, on Friday, the S&P 500 fell 30.46 points or 2.53% at 1,173.96; meanwhile, the Dow dropped 253.16 points or 2.20% at 11,240.41. Friday was the biggest drop for the S&P 500 in 2 weeks. For the week, the S&P 500 was down by 0.2%, while the Dow lost 0.4%.

Zero job growth in August
The US jobs report showed that August unemployment remained at 9.1%, the same level as July. It was better than the 9.2% economists expected. However, June and July jobs figures were revised lower by a combined 58,000. 

Greek bailout in question
On Friday, the IMF, EU and ECB delayed negotiations on the release of the next $800 million in bailout funding for Greece by 10 days. It was due to the Greek government raising its deficit projection for this year from 7.6% of GDP to 8.1-8.3% of GDP.
Meanwhile, the Italian government modified its austerity package announced in August. It cut a key increase in taxes, and decreased the rate at which local governments were to conduct austerity. This move raised questions about the ability of Italy to reduce its deficit. 

Funding shortfall for euro zone banks
On Thursday, the IMF estimated that, because of the sovereign debt crisis among PIIGS nations, euro zone banks faced a $200 billion euro funding shortfall. If investors become more concerned about the condition of Europe's banks, their shares would fall further in the coming weeks. 

US ISM and factory orders better than expected
On Thursday, US ISM for August was 50.9, a decline from July's 50.6. It beat expectations of the reading falling below 50 for the first time since 2009. However, also on Thursday, the White House downgraded its GDP growth projection for this year (from 2.7% to 1.7%) and 2012 (from 3.6% to 2.6%). On Wednesday, US factory orders in July climbed 2.4%, the biggest increase since March. 

US consumer confidence tumbles
On Tuesday, US August consumer confidence was announced as 44.5, worse than the 52 that the market expected. It was also the lowest level since April 2009, and a 25% decline from July's 59.5. 

QE3 hopes raised by Fed minutes
On Tuesday, the minutes from the August 9 Federal Reserve meeting were released. They showed that members of the Fed were pushing for new stimulus measures. The news lifted markets, as investors became more hopeful for a QE3 to be announced September 20-21.

US housing market still in deep hole
On Tuesday, the S&P/Case-Shiller index of 20 US cities showed that home prices fell for a 9th consecutive month in July. The value of houses has a significant effect on the wealth of Americans, and this data shows that the US housing market still has yet to rebound. 

Gold shines with backdrop of US jobs report and euro zone problems
On Friday, gold rose almost 3% to settle at $1,882/ounce, as the ugly US jobs report caused concern among investors. On August 28, I wrote that I decreased my positions in Goldcorp and Barrick Gold by 25% when gold hit $1,900/ounce, and the former reached C$53.85 while the latter reached C$52.23. On Monday August 29, I increased my position in Barrick Gold back to the 100% level, when it fell to $48.60. This was consistent with a strategy outlined in Gold Investing Mastery Guide. On Friday, I reduced my position in Barrick Gold back to the 75% level, when it was at C$52.90. This was done once again using a strategy in Gold Investing Mastery Guide, and resulted in a gain of 8.85% in 4 days. 

Looking ahead to next week
When North American markets open tomorrow after the long weekend, stocks will likely be pulled lower due to Friday's ugly US jobs report. However, Barack Obama will announce job-creation measures on Thursday, which could provide a boost for markets on Thursday and Friday. On the other hand, if the market perceives the measures as being not enough, stocks could fall after the measures are announced.

Meanwhile, in the euro zone, markets will likely be pulled lower next week, as the next $800 million euro bailout funding for Greece is put on hold. In addition, as the IMF pointed out, there is a funding shortfall among euro zone banks, due to their exposure to GIIPS sovereign debt. This could raise fear among investors, especially if they believe that the funding shortfall is greater than the $200 billion euros that the IMF estimates.
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