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Stock Market Today: Jobs Are Good, But this Stock is Better

By , Money Morning - • Print | Email

The stock market today opened higher after the unemployment rate unexpectedly dropped. The Dow Jones was up 60 points, or 0.45%, and the S&P 500 was up 6.40 points, or 0.44% in early trading.

The jobs report seems to have jumpstarted markets today, but one stock has been hot all week and doesn't need manipulated reports to boost it higher.

Here's a breakdown of today's news and a stock you need to know about.

  • Unemployment falls for right reasons this month– The Labor Department reported today that 114,000 jobs were added in September, in line with expectations. The surprising news is that unemployment declined three percentage points to 7.8%, marking the first time since January 2009, President Obama's first month in office, that unemployment is below 8%. Unlike last month where the rate ticked down due to more workers dropping out of the labor force, this month's decline was a result of more jobs added in prior months and a surge in part-time workers. The August and July reports were collectively revised upward a total of 86,000 jobs and around 582,000 workers accepted a part-time role. After the revisions 146,000 jobs were added on average over the last three months, significantly better than the second quarter average of 67,000. Both candidates will try to spin September's report and analyze the numbers to their advantage as October's jobs report comes out just days before the election. "The September jobs report will frame the economic debate and could prove critical to the election outcome," Carl Riccadonna, senior U.S. economist at Deutsche Bank AG (NSYE: DB), told The Wall Street Journal ahead of Friday's release.
  • Earnings season about to kick off- Believe it or not next week starts the third quarter earnings season as Alcoa Inc. (NSYE: AA) announces its earnings after markets close on Tuesday. Investors have been waiting to see if a poor earnings season could reverse the rally we've had over the past few months. Analysts expect the majority of earnings to be weak after many companies have already lowered their outlooks.

Now here's one stock to avoid and one big winner:

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Why the U.S. Jobs Report Could Be Much Worse than Expected

By , Contributing Writer, Money Morning - • Print | Email

The September U.S. jobs report, the second to last before Election 2012, is expected to show 110,000 jobs added for the month – but there's a chance it could be much uglier.

First, the weekly initial jobless claims out today (Thursday) increased 4,000 to 367,000 for the week ended Sept. 29. Never a good lead in to a jobs report.

Second, the ADP jobs report released Wednesday showed the private sector added 162,000 jobs in September, less than the 189,000 added in August. ADP's report is often skewed to the upside compared to the government's employment numbers.

Data shows that between April and August, ADP estimated nearly 50,000 more private sector jobs were added per month than the government report (widely viewed as more accurate).

But in August, ADP's number overshot the government's by a hefty 98,000.

Equally disturbing is that the number of jobs being added (according to government figures) is nowhere near what is considered healthy. Just to keep up with population growth, our economy needs to add at least 125,000 jobs every month.

At that pace, it would take at least four more years for the U.S. job market to fully recover from the Great Recession.

"We're not going anywhere quickly in the jobs market," Ryan Sweet, senior economist at Moody's Analytics, Inc., told Bloomberg News. "The job market is just more of the same. Layoffs aren't the big problem, it's the lack of hiring."

The number of jobs employers added in August was an uninspiring 96,000, a steep decline from July's 141,000.

And while the unemployment rate eked down to 8.1% from 8.3% the previous month, it was for all the wrong reasons.

Many discouraged Americans have given up looking for a job. Plus, more young adults are prolonging their education in attempts to avert entering a very difficult job market.

And with the following factors, 2013 looks to get even worse.

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Check Out What's Fueling Gains in the Stock Market Today

By , Money Morning - • Print | Email

The stock market today opened higher on mixed labor reports as investors await tomorrow's September jobs report.

The market was also lifted by encouraging comments from European Central Bank President Mario Draghi on the fiscal health of Spain. Speaking at his regular monthly news conference Draghi stated the ECB is ready to buy bonds when necessary and that the ECB will not lower its record low 0.75% refinancing rate.

Here are today's other major stories:

  • Don't expect a great September jobs report– There are a few mixed labor reports to digest a day before last month's unemployment and nonfarm payroll numbers are released. Automatic Data Processing (ADP) yesterday reported the economy added 162,000 private-sector jobs in September. This was better than projections for 140,000 new jobs but much slower than last month's downwardly-revised figure of 189,000 jobs. Investors monitor ADP's numbers for clues on what the government might report, but ADP does not include public sector jobs and is not a great indicator of Friday's Labor Department's report. The Labor Department reported today that 367,000 initial jobless claims were filed last week, slightly higher than expected. The less volatile four-week moving average remained unchanged at 375,000. "The trend is still looking fairly stable. The labor market is improving but it is not really gathering direction for better or worse, it is still just plodding along," 4CAST economist Sean Incremona told Reuters. One more piece of data to look at is layoffs from outplacement firm Challenger, Gray & Christmas. It said U.S.-based employers announced plans to cut 33,816 jobs in September, down 71% from a year earlier. On average economists expect tomorrow's report to show 113,000 jobs were added in September and that unemployment ticked back up to 8.2%.
  • Factory orders decline by most in 3 years- The Commerce Department reported that factory orders fell 5.2% in August after rising 2.8% in July. The decline was fueled by a 102% plunge in demand for commercial aircraft which led to a previously reported 13.2% drop in durable goods. Overall the 5.2% decline from a month earlier was expected by economists but continues the trend of a slowdown in manufacturing activity. One positive is that orders for business equipment and software, often considered a gauge of business confidence and investment plans, rose 1.1%. "These data indicate that the recent softness in manufacturing activity and capital spending is likely to continue, at least for several more months," Steven Wood, president of Insight Economics LLC in Danville, California, said in a note to clients.

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QE3 and Low Interest Rates Help Savers? Bernanke Thinks So

By , Associate Editor, Money Morning • @DavidGZeiler - • Print | Email

U.S. Federal Reserve Chairman Ben Bernanke wants you to believe his cheap money, low interest policies like QE3 actually have benefits for savers.

America's savers, many of whom are retired or nearing retirement, would beg to differ.

You see, low rates at the Fed – which has pledged to keep its interest rates near zero at least through 2015 – means low rates on conventional savings vehicles like bank accounts, certificates of deposit, and money market funds.

Those rates affect $10 trillion in savings-like products, costing savers billions of dollars.

For example, if a saver had $100 in a savings account in 2008 that paid 0.35% interest, she'd have just $102 today. But with inflation, $100 worth of goods in 2008 now costs $107.

That's a loss of 5% in four years, the sort of math that eats away at a retiree's standard of living.

And the rates of 2008 look fantastic compared to what's available now.

The Fed's actions have pushed down interest rates to microscopic levels. The average savings account interest rate has fallen one-third in the last year alone, to 0.08%.

The average yield on five-year CDs last month dropped below 1% for the first time ever. Back in 2007, five-year CDs provided a yield of 4%.

And yet in a speech he gave at the Economic Club of Indiana on Monday, Bernanke said his policies are helping savers.

Here's why.

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How QE3 and Higher Inflation Are Part of the Fed's Master Plan

By , Money Morning - • Print | Email

U.S. Federal Reserve Chairman Ben Bernanke might not admit it, but he just drastically increased the inflation risks for 2013 and beyond.

That's because Bernanke pledged on Sept. 13 that QE3 -unlike the stimulus programs before it – will continue for an unlimited timeframe.

QE3 has already led to a rally in commodity prices, like the previous Fed stimulus actions.

But this time the inflationary surge will get much, much worse.

"If the governments and central bankers continue to flood the world with cheap money, it has to translate into some kind of inflation," Money Morning Global Investing Strategist Martin Hutchinson recently explained. "We started with asset inflation. But my sense is that the transition from asset inflation to consumer inflation will happen very quickly."

With median income levels at averages not seen since the mid-90s, U.S. households need to prepare their savings to survive higher prices – especially while interest rates remain near zero.

Unfortunately, it appears this environment is exactly what Ben Bernanke has in mind.

"Not only will they tolerate higher inflation, not only will they wish for higher inflation, but they actually may target higher inflation," PIMCO CEO Mohamed El-Erian told CNBC ofthe Fed. "This is a historical bet that our kids will be reading about in history books."

Here's what Bernanke has planned.

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This Pattern Joins the Mounting Evidence for Recession 2013

By , Associate Editor, Money Morning • @DavidGZeiler - • Print | Email

Don't worry about scanning headlines every day to determine the U.S. economy's chances of entering a recession in 2013.

We already know the answer.

Such indicators as gross domestic product (GDP), consumer spending, durable goods and exports all point to an economy not in a slow recovery, but on the verge of a 2013 recession.

That's because the trend lines, rather than showing gradual improvement, are moving in the opposite direction. The economy, after spending months with its head just barely above water, is about to go under.

The U.S. Commerce Department last week revised second quarter GDP sharply downward from 1.7% to 1.25%. The GDP was 1.9% in the first quarter of 2012. While we do not yet have any official data for the current quarter, a Federal Reserve Bank of Philadelphia survey of forecasters in August put the number at 1.6%.

That's an ominous pattern.

James Pethokoukis of the American Enterprise Institute explains: "Research from the Fed … finds that since 1947, when two-quarter annualized real GDP growth falls below 2%, recession follows within a year 48% of the time. And when year-over-year real GDP growth falls below 2%, recession follows within a year 70% of the time."

The Mounting Evidence for Recession 2013

There's actually a term for what we're experiencing: the "stall-speed economy." It's roughly defined as a period of two or more quarters in which the GDP remains mired below 2%.

U.S. Stocks 2012: Can Bulls Keep the Charge Into Q4?

By , Contributing Writer, Money Morning - • Print | Email

Historically, September hasn't been kind to stocks.

But a noticeable trend is emerging.

In the past seven Septembers, the Dow Jones Industrial Average has risen five times. And while the last trading day of September 2012 ended down, it was an up month for the Dow.

In fact, the Dow has now risen in 11 of the past 12 months (May saw a 6% decline). The last time markets enjoyed that kind of stellar streak was in 1959.

For the third quarter, the Dow tacked on 4.3%, the Standard & Poor's 500 Index rose 5.8% and the Nasdaq climbed 6.2%

Year-to-date, all three major indexes have enjoyed robust gains. They headed into the fourth quarter up 10%, 14.6% and 19.6% year-to-date, respectively.

Commodities also ran higher in the third quarter. Gold glowed, gaining 8%, oil gushed higher by 8%, and the Dow Jones-UBS Commodity Index surged 15%. Gold, up 11% in 2012, and silver, up a sterling 24% so far this year, are both expected to benefit further as the Fed's free monetary stance weighs on the value of the dollar and inflation worries are amplified.

Most of September's gains came during the first two weeks as markets anticipated a third round of quantitative easing. The Fed delivered at the Sept. 13 Federal Open Market Committee (FOMC) meeting, and stocks muddled through the rest of the month suffering from a case of buy on the rumor and sell on the news.

"The third quarter story was really simple. The performance was propelled by the generosity of global central bankers," Rex Macey, chief investment officer at Wilmington Trust told USA Today.

Now let's take a look at if this momentum will surge into the fourth quarter.

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Fiscal Cliff: How Each Candidate Plans to Save Us

By , Contributing Writer, Money Morning - • Print | Email

America is moving closer to falling off the dreaded fiscal cliff, but Congress continues to move at a snail's pace in addressing the pressing subject.

And while the nation waits for a resolution, the costs of doing nothing are rising, with U.S. taxpayers' money at risk.

Lawmakers have taken a "hurry-up-and-wait" stance, putting off until after the November presidential election any decision-making about the most crucial matter currently facing Congress.

At issue is whether to extend some or all of the Bush-era tax cuts and how to handle the nearly $1 trillion in spending cuts slated to kick-in starting Jan. 1.

If the expiration of tax cuts comes to fruition, the result will be the biggest tax increase ever levied on Americans (Taxmageddon 2013).

If the spending cuts start rolling out, thousands of jobs will be lost, our country's security will be put at risk, businesses will sorely suffer and programs that rely on government contracts will disappear.

With just a few weeks before ballots are cast for our next president, the looming fiscal cliff has become a heated topic on campaign trails. Falling off the cliff would undoubtedly thrust the struggling U.S. economy into a recession in 2013, a consequence neither contender wants to tackle.

So how do they plan to avoid the fiscal cliff? Let's take a look.

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Gold Prices: Here's Why All the Hype Goes Beyond QE3

By , Money Morning - • Print | Email

It was another bumpy week for gold prices that included two-week lows and a surge to seven-month highs.

On Thursday, December gold futures increased $26.90 (1.5%) and settled at $1,780.50 an ounce on the COMEX.

This represented gold's highest close since the end of the February.

As the week comes to an end and traders waited for more news from Spain, December gold was down on Friday morning to $4.10 to $1,776.40 an ounce.

Gold's price moves came from a number of factors this week including bargain hunters and weak U.S. macroeconomic data.

The bottom line is that the QE3 rally might have fizzled, but the long-term gold outlook still shines brightly.

Here's why.

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If Romney Wins Election, Make Sure You Own These Six Stocks

By , Contributing Writer, Money Morning - • Print | Email

With U.S. President Barack Obama holding a narrow lead in the polls over Republican challenger Mitt Romney, investors need to be prepared for a win by either candidate.

Strangely enough, history has shown that the stock market actually does much better under Democratic presidents than Republican ones – three times better since 1913, according to The New York Times, and more than five times better since 1960.

Of course, that doesn't mean there won't still be plenty of stock market opportunities if Romney wins the election. It just means investors must be a bit more selective, targeting leading stocks in industries that have a history of prospering under GOP policies, especially those directly affected by planks in the Republican platform.

Sectors that fall into this category include certain health insurers, medical device makers, energy companies, domestic oil exploration outfits, utilities, transportation firms (especially railroads), and defense contractors.

Let's take a look.

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