"Kee" Points with Jim Kee, Ph.D.

The non-farm employment number probably impacted markets the most last week, as the 88,000 new jobs created last month were well below February's 268,000.  I know I'm being repetitive, but the meaningful number from an econometric point of view (statistics applied to economics) is not any given month's employment number but the average over the past three months. That number is about 171,000, which reflects continued, albeit weak, expansion. That's why we had a down market on Friday but not a huge sell-off. Also discussed in conjunction with the BLS's (Bureau of Labor Statistics) report was the continued decline in the labor force participation rate. I've talked about that in prior Kee Points - the labor force participation rate has been declining since 2000, though the rate of decline has accelerated since the 2008 recession. How much of this reflects overshoot that peaked from the tech bust, how much reflects the deleveraging following the 2007-09 financial crisis, and how much reflects government policies, is a morass I'd rather not step in. I'm fairly confident that those "drivers" will still be debated by economists 80 years from now!
 

"Earnings season" begins this week as companies start to report their first quarter earnings results. Most feel that current analysts' expectations are too high and that many companies will disappoint...another catalyst for a sell-off. On the other hand, there seems to be a strong belief that earnings will pick up in the second half of the year and into 2014. Since markets are forward looking, I would not attempt much market timing here based upon quarterly earnings releases.

 

Faster growth in the second half of this year is consistent with what we at STMM laid out in our last quarterly webcast. That economic view is also shared by most professional economists (e.g. the most recent Survey of Professional Economists) as well as by some of the more contrarian government  economists, like those at the Federal Reserve Bank of Dallas (Dallas Fed, "National Economic update"). Federal Reserve Bank of New York President William Dudley outlined the case for continued expansion in a speech a few weeks ago. He gave six reasons, which are worth repeating here:

Six Reasons for Continued Expansion: William Dudley, President, Federal Reserve Bank of New York

        1)     The period of household deleveraging that has occurred (lowering debt relative to income) may be near the end, given the extent to which it has already occurred.

 

        2)     The structural adjustment in housing has largely run its course (meaning a sustained housing recovery in the offing).

 

        3)     The international economic outlook has improved somewhat, and global financial strains related to Europe have declined (though Cyprus highlights the challenges that remain). Chinese growth appears to be accelerating out of the slowdown that occurred in 2012, and Japan is making renewed efforts to grow.

        4)     Corporate profits relative to GDP in the U.S. are at an all-time high, and cash balances are very high..."As uncertainty recedes and the outlook improves, I expect business will increasingly shift towards real investment from mainly buying back shares and hoarding cash."

 

         5)    The U.S. is in the middle of an energy revolution marked by a steady rise in oil and natural gas production.

 

        6)     Financial conditions have become increasingly accommodative...credit spreads have narrowed and the price and availability of some types of consumer loans, notably auto loans, have improved.

 

I would also like to congratulate our CEO and Chief Investment Officer, Jeanie Wyatt, CFA, on her incredible distinction as one of the Top 10 Female Advisors in the country by wealthmanagement.com.

  

Please see the links here:

 

Click here for the Top 10 Female RIA Owners.*

 

http://wealthmanagement.com/people/profile-jeanie-wyatt

 

 

*The wealthmanagement.com list was assembled by Meridian IQ and was cross-checked with the Securities and Exchange Commission Filings. The women selected are required to directly own at least 25 percent of their firm, and their firm may have no more than 50 percent institutional clients. Additionally, none of the RIAs on the list may operate a broker/dealer, a bank, or be affiliated with an investment company, and they must have some individual clients for whom they do financial planning.