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e.jones commentary....from CFA @ e.jones email plus a few weekend reads

edited January 2012 in Fund Discussions
FROM EJONES COMMENTARY

I thought you would be interested in the commentary below from Investment Strategist Kate Warne on the December jobs report.

Strengthening Job Market Improves Investor Moods

The economy added 200,000 jobs in December as the job market strengthened more than expected at the end of 2011 (based on a gain of 178,000 expected, according to Bloomberg). In addition, the unemployment rate dropped to 8.5% from a revised 8.7% in November, continuing to trend lower and also better than the 8.7% expected. The private sector added 212,000 jobs, while government employment fell slightly.

Investors anticipate that improving job conditions could help create a circle of stronger consumer spending, better economic growth and, in turn, more jobs.

Signs That the Job Market Is Healing
December's job gains and drop in the unemployment rate are reinforced by many other sources reporting improving job conditions, including the following:

ADP survey showing record job growth -- Private-sector jobs rose 325,000, according to ADP. That was the biggest monthly job increase since this survey started in 2001.

Falling first-time unemployment claims -- The average number of initial unemployment claims over the past four weeks has fallen to the lowest level since June 2008, as fewer people are losing their jobs.

Rising hours and wages -- Hours and wages both rose slightly in December, another positive sign. Wages rose 2.1% in 2011, an improvement from last year.

What's the Big Picture?
While it may be tough to sift through the month-to-month figures when assessing the overall picture, we believe the longer-term perspective shows a trend of solid improvement in the job market. Over the past year:

The private sector created 1.92 million jobs, up more than 60% from 1.17 million in 2010.

Factoring in a loss of about 280,000 government jobs, total jobs increased 1.64 million in 2011. That was an increase of 74% compared to 2010, the first year of job growth after the Great Recession.

The economy dug itself into a deep hole in the recession, with almost 9 million jobs lost, but the recovery is gaining strength, and about 30% of those jobs have been recovered over the past two years.

Overall output is now greater than before the recession. And as is usually the case, job growth lagged but followed along doggedly and accelerated over the past year. While job growth is still not as strong as most would hope, and there's a long way to go, the considerable progress shouldn't be ignored.

Investors who worried that this recovery would falter may be reassured to realize that while it may be slow, its path doesn't seem much different from past recoveries. It takes time and patience. And we think the same perspective is true for your investments. Stocks can benefit from the growth in the economy and earnings over time, and have played an important role in helping investors achieve their long-term goals.* An improving job market suggests this could be a good time to review your investments and make changes if needed.

Comments

  • flat year wild ride [Rowland commentary]
    investwithanedge.com

    Editor's CornerInvester Heat Map - 1/4/12
    2011: Flat Year, Wild Ride
    Ron Rowland

    The year ended with the S&P 500 almost exactly where it began, but we doubt many investors have forgotten the wild ride in between. Defensive sectors were the 2011 winners. Utilities, Consumer Staples, and Health Care filled their traditional role as the place to be in troubled times if one must stay in stocks. Treasury bonds were an even better refuge, despite the historic S&P downgrade of the U.S. credit rating in August.

    With the 2011 books now closed, what about 2012? We haven’t seen as many annual forecasts this year. This is just as well, since the predictions rarely prove very useful. Their main value is to provide entertainment.

    The Federal Reserve’s next policy meeting on January 24-25 will bring a new bit of information. For the first time, the Fed plans to reveal its own forecasts for the Federal Funds rate. The idea is to give markets additional assurance that borrowing costs will stay low, thus enticing growth investments. On the other hand, releasing this information may simply confirm that the Fed’s staff economists are as clueless as private analysts. We will see how it works out.

    The recent sell-off in gold appears to be subsiding, though bullion has a long way to go before we see another new high. Crude oil is also on the rise as Iran makes noise about confronting the U.S. Navy in the Persian Gulf.

    Friday will bring the December employment report, which may show a little improvement. Will it be enough to matter? Not in the big picture, and with primary elections now underway these numbers will take on a new significance. Jobless voters are usually not happy voters.

    Sectors

    Utilities, the best-performing domestic sector in 2011, still heads our list this week. Health Care is not far behind, though, and could take leadership soon. The various Health Care segments are all rising together with very low volatility. Industrials moved ahead of Consumer Staples to take third place. Financials stayed in the middle of the pack at #5. Energy improved a bit, Consumer Discretionary slipped, and Materials and Telecom still own the bottom.


    Styles

    After weeks of jumbled results, a new pattern is emerging in the Style chart. The market now favors Value over Growth. All three Value categories are in the upper half of the rankings while Growth holds three of the bottom four positions. Furthermore, relative strength is tilting toward capitalization extremes while Mid-Cap stays weak. As a result, the leaders are now Mega Cap, Large Cap Value, and Small Cap Value. The laggards are Mid Cap Growth and Large Cap Growth. The range is still relatively tight, but these emerging trends are worth watching.


    Global

    The U.S. stayed on top of the world with the U.K. closing in. The two Uniteds also happen to be the only global categories with positive momentum. We have a nearly five-way tie for third place. World Equity is being challenged by Canada, China, Latin America, and EAFE. Of note, Canada climbed significantly the last two weeks after lagging for months. Rising crude oil prices and a strong Canadian Dollar were both helpful. Japan remains mired in the bottom half, with Emerging Markets close behind. Europe moved off the bottom to make room for Pacific ex-Japan. This was due mostly to lackluster stocks in Singapore; a reversal there will likely put Europe on the bottom again soon.
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