As earnings season fast approaches, it is hard to be bearish when the S&P’s third-quarter earnings are expected to rise 13% above last year’s third quarter. Meanwhile, stocks are trading at historically low P/E ratios. Bloomberg reported that the S&P 500 was trading at just 10.2 times 2012 forecasted earnings last Monday, which is 25% below its average in the past nine recessions — and we’re not even in a recession!
This dramatic earnings compression, along with positive job news released last week, fueled a market revival. After a dismal Monday, the S&P rose 5.12% and the Nasdaq rose 6.14% since last Tuesday.
Jobs Reports
A series of three positive job reports certainly helped lift the market last week. First, on Wednesday, ADP reported the private sector created 91,000 new jobs in September — 16,000 above economists’ consensus estimate of 75,000 and virtually identical to August’s revised 89,000 pace. The breakdown by company size was dramatic: In September, big companies lost 5,000 jobs, while small- and medium-sized businesses created 96,000 jobs — proving once again that small business is America’s major growth engine.
On Thursday, the Labor Department reported that new weekly jobless claims came within 1,000 of the key 400,000 threshold, where job creation tends to pick up. The closely-watched four-week moving average declined 4,000 to 414,000, so the job creation trend clearly is moving in the right direction.
Finally, on Friday, the Labor Department reported that September payrolls rose by 103,000, substantially better than economists’ consensus estimate of 60,000. Even better, government jobs are shrinking: The private sector created 137,000 new jobs in September, while the government sector shed 34,000 jobs.
An even bigger surprise was that jobs created in the last two months were revised substantially higher, rising by 99,000 — August was revised up to 57,000 from an initial estimate of zero!
Although the unemployment rate in September was unchanged at 9.1%, the pace of new job creation clearly is improving.
