After the North Korean obsession knocked the market down on Wednesday, the S&P once again did yesterday the opposite of what it had done the day before for the 12th straight day, namely rise somewhat. The problem with yesterday’s rally was that it appeared a bit belabored, especially as the weekly jobless claims rose to their highest level in four months, up to 385,000, even though this past week was not the survey week that is used for today’s March jobs report. This sort of gave hope to the bullish crowd in the sense that the survey week that was used was in fact the three weeks ago, when claims fell to a multi-month low and there was hope that the report would reflect a higher level of new job creation, which was obviously not to be.
Bur despite these higher weekly jobless claims, the market did take upside note of the fact that there was a historic easing from the Bank of Japan, as it doubled its monthly bond purchases in a bid to encourage some inflation in that country, saying it will buy the equivalent of $73 billion of bonds a month. Relative to the size of Japan’s economy, this is the largest monetary stimulus program ever, with its promise to inject $1.4 trillion and this action sent bond yields to record lows, down to 0.425% for their 10-year maturity. And this is a record amount of stimulus because their economy is one-third the size of ours.
In addition, there was also a supportive statement from E.C.B. President Draghi, who said that monetary policy in the E.U. will stay loose for an “extended period.” There were also varying statements from Fed officials here all sticking in their two cents about when the current QE easing programs would come to an end, with completely opposite positions taken by different people, which means that no one knows when this program will end, and it might not end sooner rather than later after today’s awful jobs report.
The Dow began with a 75 point gain, which turned out to be its best level of the day at 10am, but then actually got dragged down into negative territory by the old weak Nasdaq ratio to the Dow pulling down the latter syndrome, as it fell to a 10 point loss at 1:15pm, from which level it was once again able to get its act together and rally back to a closing gain of 55. This resulted in the S&P now doing the opposite from what it had done the previous day for the 12th straight session, which has now been extended into the 13th straight day today and more on that later. The Nasdaq actually ended with a gain of 6 despite ongoing weakness in AAPL, GOOG and NFLX, the latter two obviously finding the air at their recent highs a bit too thin to sustain prices at those extended levels.
The VIX was exhibiting skepticism all day by actually rising by a large .58 points when the Dow was showing that loss of only 10 as mentioned above, but then started to decline late and finished with a closing loss of .32 to 13.89, still less than it should have. Breadth numbers were at a slightly positive ratio of 16/14, but the more interesting moves came in the outside markets, as Treasury yields fell sharply here as a result of the Japan easing situation and the higher weekly jobless claims. The 10-year fell down to 1.76%, its lowest level this year. Crude oil underwent another large decline, which is perhaps the only good thing that has come about as a result of the equity market decline this week, as it fell down to $93.28, a two-week low, which basically shows how overpriced it had been at the recent highs over $97 a barrel, and I have mentioned many times why I believe these unrealistically high prices occur.
And for those who thought that today’s employment report was going to be on the decent side, they had a rude awakening, as the numbers showed that a shockingly low number of jobs was created, the worst in nine months at only 88,000. The only silver lining behind this cloud was that the January and February totals were revised higher by 61,000, but the market wants to know – what have you done for me lately, so to speak.
The unemployment rate declined down to 7.6% from 7.7% only because of the number of people who gave up looking for work and dropped out of the labor force as a result, to the tune of 496,000 people. Retail jobs showed the largest decline, and hello, don’t you think that this had something to do with the fact that people’s take-home pay is less because of the increase in the social security tax deduction from a person’s check and also due to the fact that gasoline prices at the pump were at their highest levels ever in February and March, for this time of the year, and for that we can thank the energy traders who maneuver this market beyond what the fundamentals would suggest. This weakness in the overall jobs total might be attributed to a word that the market had sort of forgotten about in its rush to consecutive all-time highs in many averages last month and earlier this month, and that is the word “sequestration”. This could have a negative impact as those federal spending cuts have only just started and could be a more substantial headwind for the economy in the next three months. This is because many government workers will have to take days off without pay.
On the other hand, the February trade deficit did narrow to $43 billion as crude oil imports fell to their lowest level in 17 years and overall exports showed a slight increase. This will add to the first-quarter of 2013 G.D.P.
As a result, the Dow opened sharply lower and reached its worst level with a loss of 172 at 10am, from which it has chopped irregularly higher to a current loss of “only” 88 points, its best level of the day as this is being written. Breadth numbers are at a negative 11/18 ratio and even the VIX is calming down a little, as it got as high as a gain of 1.76, which basically matched the Dow’s worst early level and is currently behaving itself with an advance of only .63 to 14.52.
And naturally on a “risk-off” day like today, the bond market is really lowering yields once again with the 10-year down to a four-month low at 1.68%, which is weakening the dollar, as the Euro is up to 1.300 after holding that support below 1.2800 earlier this week, and one could sort of see this coming. And how about gold, whose demise had been widely reported in the financial press as it was weakening earlier this week, finding support just where it should have at $1,550 an ounce and it is rallying somewhat off of that level on the weak dollar. And once again, if any good has come out of all of this, crude oil is continuing its decline on the now ostensibly weaker economy, and is at around $92.50, again only back to levels where it was a few weeks ago.
Next week is the start of the heralded first-quarter earnings reporting period, with the ridiculous situation where AA, a stock that has lost 80% of its value in the past several years, leads off the lineup and the biggest deal will be made about a stock with an “8” in front of it only because after all, it is in the Dow. This will be followed by other companies that are not so interesting until we get a deluge of really important ones the week of April 15th, For what it is worth, we will hear from BBBY on Wednesday and JBHT, PIR and RAD on Thursday.
Economic reports will include: Wednesday – the minutes of the last Fed meeting, always important; Thursday – weekly jobless claims; Friday – March advance retail sales, March P.P.I. and the April preliminary U. of Michigan Consumer Sentiment Survey.
First quarter earnings rose by 6.2%, increased by 5% for the second-quarter, were flat for the third-quarter and were 8% higher in the fourth-quarter. The current projection is now for a gain of only 1.6 % in the first-quarter of 2013, down from the original projection of 4.3% in January.
The S&P trades at 14.2 times the projected 2013 earnings of $111. Earnings were $85 in 2010, $92 in 2011 and $102 in 2012. The estimate for 2013 is $111, a gain of 9%. The average P/E multiple for the S&P going back to 1954 has been 16.4 and it has been 14.4 for the last 10 year’s average.
After four consecutive quarters of negative G.D.P. growth, we have had 14 consecutive quarters of positive growth, starting with the third-quarter of 2009, every quarter in 2010, every quarter in 2011, and every quarter in 2012. G.D.P. rose by 2.2% in 2012, and is projected to increase by 2% in 2013, according to various surveys.

Donald M. Selkin

Don Selkin is the Chief Market Strategist at National Securities Corporation, member FINRA/SIPC, (NSC) and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide our customers with timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analyses concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, Recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: {Bloomberg Financial, Reuters, Associated Press}.