Financial and physical assets were down in the wake of the U.S. jobs report released on Thursday. While U.S. markets were closed for business on Friday, Asian and European markets traded flat to lower, and they fell again in Monday trading. The West Texas Intermediate crude oil spot price closed on Thursday at $66.73, but could head as low as $63 in early trading. PowerShares DB Crude Oil Double Short (DTO - commentary - Trade Now) has delivered great returns over the past few days, up more than 15% between June 29 and July 2, and it's up nearly 7% in early trading..
Investors were stung by the jobs number because it pierced the "green shoots" optimism that fueled the spring rally. This morning, a Bloomberg headline warns: "Earnings Drop Worldwide as Job Losses Hurt Consumers." The Railfax report through June 27 continues to show a weakening economy, with autos down about 50% from 2008 over every period measured. Coal and food shipped by rail declined about 10%, as these defensive sectors hold up better than most. Generally, the pace of the decline has slowed, but negative numbers mean the bottom has yet to be reached.
While commodities and stocks slide, the U.S. dollar and Japanese yen rally. Investors looking for a way to hedge against a drop in equities can look to PowerShares DB U.S. Dollar Bullish (UUP - commentary - Trade Now) or CurrencyShares Japanese Yen (FXY - commentary - Trade Now). Aggressive investors can consider a smaller position in DTO or other leveraged funds, but use tight stops because these products can deliver sizeable losses even in intraday trading.
Thursday's job report seems to have pierced the veil of optimism that clouded a flat market for the past two months. A lot will depend on earnings, but gold is ringing a bell of caution as it fails to advance. Investors need to be prepared for a market that could move sharply in either direction, but more losses appear likely in the near term.
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At the time of publication, Dion had no positions in the stocks mentioned.
Don Dion is the publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.
Dion is also president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.
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