The futures have had a rather tame reaction to what can only be labeled a “disappointing” jobs number this morning. November non-farm payrolls added a mere 39,000 jobs compared to estimates in the 150,000 area and the unemployment rate checked in at 9.8%, slightly above estimates. There was one bright spot in that October jobs were revised HIGHER from 151,000 to 172,000.
So far the modest reaction in the futures is a strong sign that sellers have been washed out and buyers are willing to step higher. After the two day surge that we just experienced it makes sense for prices to digest before embarking on the next leg higher. Although this unemployment number does come as a bit of a negative surprise, the October revision is a promising start.
One thing we do need to remember is that only recently did the economic data start reflecting an improving macroeconomy. Unemployment is a lagging indicator, meaning it does actually take time for improvements in consumption and production to filter its way through the economy into more jobs.
A second “kicker” in all this is that market participants at this point interpret good news as good and bad news as kind of good. Why is that? Well just yesterday some members of the Federal Reserve Board of Governors indicated that QE2 would be subject to review as it’s being executed (Reuters). What that suggests is that should we get a quicker improvement in economic conditions than anticipated, the scale of QE2 would be pared back in order to accommodate. Bad data means that QE2 continues, while good data means QE2 might end. Either way at this point it’s a heads we should go up, tails we should go up.
The resiliency of this market will be the key tell as to which way we really do go next. Should we go positive today, then get those rally caps on for a great finish for equity markets in 2010.