July 8, 2011

Falling Employment Can’t Faze Markets

The private sector only created 18,000 jobs last month, short of even the most pessimistic forecast. Yet stocks managed to stage a late day rally, erasing most of the shock and awe from the open. What is there to learn from today’s market action?

For starters, traders seem to think that the bad report—and the bad report from the prior month—were nothing but flukes. The recovery is certainly slower than expectations, but it is a recovery. The groupthink seems to indicate an updraft in the fall.

And with rates so low, there aren’t many alternatives to equities. A modestly diversified portfolio of dividend-paying stocks may yield 3-5%—nothing to sneeze at in the current low-inflation environment—and it beats the pants off high-quality corporate bonds or CDs.

Finally, there seems to be continued confidence in earnings growth. Investors appear eager to have exposure to stocks as earnings season approaches.

As a believer in the notion that groups can often be savvier than even the smartest person in them, I believe that today’s recovery after the horrific jobs report is an indication that stocks could very well trade higher in the next few quarters.

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