The Sept. 2 labor report was just plain lousy. While the Verizon (NYSE:VZ) strike had a small impact on the numbers, no new jobs were created that would be worth speaking about. The job-creation machine simply is not engaged. This set a perfect (or some might say, an imperfect) backdrop for the President’s speech Thursday night; though, with all the gridlock in Congress, it will take a minor miracle to get anything accomplished. This leaves the Congressional Gang of 12 to make policy for the next month or more.
After a manufacturing report that surprised economists with somewhat better-than-expected numbers, the service economy report for August also surprised with the composite, actually rising rather than falling for the month. And while the employment component within that index fell, there is at least a glimmer of hope that the economy is not yet headed toward another recession, but rather remains mired in the no-growth to slow-growth muck.
A variety of analysts and experts are using terms like “sluggish” and “moderate” to describe what’s happening in the U.S. economy. The regional Fed’s beige book report confirms the tepid pace of growth across at least seven of the 12 distinct regions. And the release of a speech that Fed Chairman Ben Bernanke gave, though it didn’t say much we didn’t already know, took the air out of the markets Thursday afternoon, sending Treasuries on another tear with the 10-year yield dropping below 2%.
I would simply repeat what I’ve been saying for some time — that the economy remains in a “slow-growth, not no-growth” situation, impeded by a weak housing market, a weak jobs market, the Greek and larger European issues at hand and what has been characterized as “bailout fatigue” as we roll from one fledgling crisis to the next.
That fatigue seems to be presenting itself at least in part in the increasing volatility of the stock markets. Two weeks ago, I told you about the number of days we’ve seen 2%-plus swings from high to low, or vice versa, in the Dow and how it had accelerated from three days in the first seven months of the year to all but six of the 23 trading days in August. Well, we’ve had six trading days in September and only two in which we didn’t have a 2% or greater swing. For all this volatility, we’re a bit under 14.2% below the April high for the year.
All of that being said, profit growth is running well ahead of economic growth, and that’s probably the biggest reason I believe stocks remain undervalued — that, and extremely low interest rates. The 10-year Treasury hit a new low last week in intraday trading. It isn’t often that you see very low rates on bonds and very low P/Es on stocks, and for those with patience — and a few good managers on their side — this is as good an opportunity as any to continue building positions in the market.
