There were 110,000 new jobs filled in September, slightly above forecast and a good showing. The July and August numbers were revised upwards. The August revision was startling, going from a net loss of 4,000 jobs to 89,000 new jobs created. The discrepancy was due to the underreporting of jobs filled in the government sector. Gives you a lot of confidence in the government and their reports, doesn’t it? It also shows the danger of reacting to one month’s data, i.e., August’s initial report. The three months taken together suggest continued, albeit slow, economic growth.
The stock market, as usual, anticipated the stronger than thought economy. It had recovered almost all of its losses since its July high and, on Friday, the S&P 500 and Dow both had record high closes. Goes to show, you shouldn’t try to out guess the market and the wisdom of investing for the long term.
With new jobs creation receding into the background, at least until next month, the primary driver of the market becomes third quarter corporate earnings reports. Analysts are looking for a down quarter overall, due to the August credit market problems. If the aggregate results exceed expectations it will be a positive for the market. Given current earnings projections for 2008, and assuming no recession looming, the Dow and S&P should work their way higher by about 8% between now and late-spring of next year. Add in the dividends you receive on your stocks, and your return will be greater. If this market movement occurs over the next six months, with dividends, it could approximate a 20% annualized return, very respectable when compared to a sub-5% annualized yield on Treasuries and a 2 – 3% annual inflation rate. So, the stock market is the place to be.
We’ll still watch retail sales, the price of oil and the monthly trade numbers but, for now, our primary focus will be on earnings reports and whether analysts adjust their 2008 projections up or down as a result. Assuming the status quo, the stock market will gradually work its way higher in a saw tooth pattern.
