What the August Employment Report Could Do to Today’s Stock Market

Chris Versace

Chris Versace is a financial columnist and equity analyst with more than 20 years of experience in the investment industry.

During the last few days, we’ve gotten a number of economic reports that show an improving global economy. On the domestic front, Wednesday’s August ISM manufacturing index showed continued month-over-month improvement with the best order figure in several months. That situation suggests an improving U.S. economy, as did the latest data from both Markit Economics and HSBC on the euro zone and China, respectively. Markit Economics reported the final August euro-zone Manufacturing PMI came in at 51.4, a 26-month high of 51.4 that was ahead of 50.3 in July. Turning to China, HSBC’s August China Manufacturing PMI rebounded to 50.1 from an 11-month low of 47.7 in July. To me, this situation points to a potential stabilization in China, which is better than the declines we saw during the last several months. But one month of good data does not mean China is back on the path to growth just yet.

That improvement sounds pretty good, but there is a dark side to the data as well — at least where jobs are concerned. And that risk is something to zero in on as we contemplate Fed tapering. As you probably know, the next Federal Open Market Committee meeting is set for Sept. 17-18. Remember, the Fed is aiming to keep short-term interest rates near zero until the unemployment rate falls to 6.5% or inflation exceeds 2.5% a year. So far, there are no signs in the consumer price index or producer price index data that inflation is approaching the 2.5% level. While we’ve made would-be progress in the unemployment rate, largely due to a growing number of folks dropping out of the labor force, we are still a ways away from 6.5%.

My concern is the August employment data could actually see a rise in the unemployment rate.

While we will get the “official” August Employment Report Friday morning from the Bureau of Labor Statistics (BLS), we’ve seen several signs of a rising unemployment rate during the month. Intuit’s Small Business Index reported a dip in employment for August, while Gallup’s August unemployment report jumped to 8.7%, up 0.9% from 7.8% in July — a huge move. Moreover, one of my favorite data sets to watch — Gallup’s payroll to population — fell to 43.7% in August. Even the aforementioned August ISM manufacturing report saw a dip in its employment data month over month.

Exclusive  Cannabis Corner: The Fundamentals Got Better

Intuitively, most of us see such a rise in the unemployment rate as a bad thing. Should we see a rise in the “official” unemployment rate from July’s 7.4% rate to something higher, the stock market is likely to see that increase as “good news!”

The reason? A move higher of more than a 0.1% would likely put the Fed in a tough position to taper its sugar-laden stimulus program to any meaningful degree near-term. On the flip-side, if the unemployment rate furnished by the BLS continues to fall, the stock market surprisingly will not like that situation because, when taken with some of the recent domestic economic data described above, Mr. Market will interpret it to mean there is an even greater likelihood the Fed will taper in September.

Keep in mind, as investors, we will need to realize the economic truth for ourselves. By that statement, I mean digging deeper, past the reported unemployment rate, and looking not only at the more encompassing U6 figure that shows unemployed and underemployed and the mix between full-time and part-time jobs, but also the trend in hours worked and wages. Data published during the last several weeks shows the average household income is down compared to four years ago.

Perhaps the Fed should be focusing on more than just a misleading statistic that politicians exploit. Focusing on just that statistic reminds me of the Wall Street saying about trying to make a bad investment look good — “put lipstick on that pig.” No matter how you dress it up, underneath it all, it’s not what it’s cracked up to be. That certainly can be said about the “official” unemployment rate.

Exclusive  A Fond Farewell from Doug Fabian

The Opportunity in the Soon-to-be Electronic Medical Records Pain Point

Joining me this week on PowerTalk is Lauren Fifield, senior health policy advisor at Practice Fusion. Practice Fusion is one of the fastest-growing electronic health record (EHR) companies in the United States. Founded in 2005, the company has 150,000 physicians and practice users of Practice Fusion’s EHRs across all 50 states. At Practice Fusion, Lauren manages government relationships and monitors an ever-changing landscape of legislation, regulation and health industry antics.

Many citizens and business owners are concerned about the increasing costs associated with the Affordable Care Act — better known as Obamacare. A study from the nonpartisan Society of Actuaries estimates that because of higher-risk pools, nationwide insurance costs will rise 32% on average within three years. Even Health and Human Services Secretary Kathleen Sebelius told reporters, “Some people purchasing new insurance policies for themselves this fall could see premiums rise because of requirements in the health-care law.”

In talking with Lauren, it became clear that there is another shift in Obamacare worth noting. More specifically, the carrot that was a part of the High Tech Act passed in 2009 that incentivizes doctors to move to electronic medical records (EMR) becomes a stick at the end of 2014. And by stick, I mean that doctors will be seeing their Medicare and Medicaid payments penalized until such EMR systems are enacted.

Regulatory requirements and associated deadlines make for great catalysts when it comes to investing. I’ve seen this phenomenon time and time again, be it with new truck engine emissions standards or other new mandates in heavy trucks and other equipment. The deadline tends not to be some line in the sand that gets redrawn several times a la the famous Bugs Bunny-Yosemite Sam cartoon. Instead, it’s a firm line that sparks strong demand ahead of that compliance deadline, and that situation is good news for a particular set of companies.

Exclusive  Visa’s Monopoly Inhibits Retailer Profit Margins

Click here to listen to my PowerTalk with Lauren Fifield of Practice Fusion

Latest Special Reports
As a courtesy, I want to bring your attention to my three latest special reports, Eight “PowerTrends” for the Next Decade of Wealth, Power Plays: Today’s 8 Most Urgent “PowerTrend” Wealth Picks and Double Your Money by Year’s End with the Company Comcast, Verizon and Cisco Can’t Do Without. Each of these FREE reports gives excellent investment information on a key segment of the market.

In addition, take a look at the recently updated version of The Top 12 Stocks You Should Buy Right Now, which features three of my top investment recommendations, as well as bonus picks from each of my fellow investment newsletter editors at Eagle. All of these special reports are accessible now to subscribers of PowerTrend Profits on my website. To access the website or to subscribe now, click here.

To read my e-letter from last week, please click here. I also invite you to comment about my column in the space provided below.

Upcoming Appearances

  • Each Friday, I sum up the week and talk about what to expect in the week ahead with America’s Morning News. Click here to find a radio station near you that carries the program.
  • Also each Friday, I join The Andrea Tantaros Show to dissect the latest economic and stock market news with Andrea and her listeners. You can listen to that discussion by clicking here.

Like This Article?
Now Get Mark's FREE Special Report:
3 Dividend Plays with Sky-High Returns

This newly-released report by a top-20 living economist details three investments that are your best bets for income and appreciation for the rest of the year and beyond.

Get Access to the Report, 100% FREE


img
previous article

Stocks rose today in advance of tomorrow's release of jobs data. As a result, benchmark indices achieved their longest rally in more than a month.

PREMIUM SERVICES FOR INVESTORS

Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

Product Details

LEARN MORE HERE

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Product Details

LEARN MORE HERE

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker,
financial journalist, and money manager. As well as a book author and regular contributor to
numerous investment websites, Jim is the editor of:

Product Details

LEARN MORE HERE

Bob Carlson

Bob Carlson provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

LEARN MORE HERE

Hilary Kramer

Hilary Kramer is an investment analyst and portfolio manager with 30 years of experience on Wall Street. Since 2010, Hilary's financial publications have provided stock analysis and investment advice to her subscribers:

Product Details

LEARN MORE HERE

Jon Johnson

Jon Johnson's philosophy in investing and trading is to take what the market gives you regardless if that is to the upside or downside. For the past 21 years, Jon has helped thousands of clients gain success in the financial markets through his newsletters and education services:

Product Details

LEARN MORE HERE

DividendInvestor.com

Used by financial advisors and individual investors all over the world, DividendInvestor.com is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

LEARN MORE HERE