Stocks Recover to End a Strong Week

Sunday, August 08, 2010

jobs marketStocks gain 1.8% for the week recovering after disappointing jobs report

Traders immediately hit their sell keys when the government jobs report was released Friday morning at 8:30 AM. US futures were trading up pre-market and then out came the report and markets quickly dropped. Eventually stocks opened the day gapped down about 1%. After an initial surge of buying on the open, stocks collapsed hitting lows of down 1.7%, down 158 points for the Dow Jones. But, the buyers were not dead, just asleep. They woke up and rallied the market to close down a minor 21 points in the Dow for the day capping off a strong week with a strong finish.

I was off the trading floor Thursday and Friday and will also be away to start this week fulfilling a civic duty. August would typically be one of the best months to be called away but my thoughts have been playing themselves out well in the market recently so I am disappointed. But, August started out well for me and I should be back within a week.

With that said, Friday's reversal felt a bit fake to me. Granted I was watching prices from afar but I did see the initial selling reaction on the number before I had to leave. I don't know how to characterize it but the market seems due for some sideways action and an August Friday reversal is not one I'm going to trust fully. Either way, I've got plenty of long exposure and I likely won't be making many moves to start the week. August may easily be a slow, grinding month.

Jobs report not terrible, recovery is long and slow

The headline number for the July jobs report was a decline of 131,000 jobs versus expectations of 60,000 in job losses. The unemployment rate held steady at 9.5%. Private sector hiring picked up with an addition of 71,000 jobs yet 143,000 temporary census workers were dismissed after completing their work. Governments jobs around the United States, including state and local, fell a total of 202,000 jobs.

While governments are attempting to tighten their belts, the private sector is once again expanding albeit rather slowly. The 71,000 in private hires in July follows the 83,000 in May. If this can continue improving we may achieve the first milestone of beginning to hire at the pace of workforce additions.

Holding onto Goldman (GS) and waiting

I still have a large position in Goldman Sachs (GS) after selling 30% at $156.70 on Wednesday. Wednesday offered some follow-through to the upside as CNBC reported that GS is considering spinning off its proprietary trading desks. Several pundits came out claiming this would be accretive to earnings by unlocking value, particularly Dick Bove, the noted financial sector analyst. GS is said to be mulling its options and rumors hit trading desks on Friday afternoon that insiders are considering taking the company private causing a price spike before fading. Whatever way the cookie crumbles, GS is still trading 1.2 times book and 7.8 times trailing earnings so I have a hard time believing the stock is not worth a good deal more and that my target in the $160s will ultimately be pathetically conservative. Of course, time will tell.

Disclosure: Long SPY, GS.
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