The financial markets are just as prepared for the next month's set of economic data as they were for this month's, in particular for the monthly employment report. The preparedness has helped to keep the markets fairly well-balanced despite a cavalcade of very bad economic news, especially the 533,000 decline reported for November payrolls on Dec. 5. The latest jobless claims figure, which hit a new high for the cycle on Wednesday, almost certainly will keep the level of preparedness for next Friday's jobs report as high as (or higher than) ahead of the last jobs report. This is obvious in the consensus estimate, which at 475,000 is 140,000 more than a month ago and 275,000 more than the estimate for the Nov. 7 release of October payrolls.
The high level of preparedness of course does not mean that equities will gain on a number in the vicinity of the consensus forecast, but it would likely reduce the equity market's downside. Nevertheless, if economic data stop getting worse (i.e., if payrolls move from down 500,000 per month to down 400,000 and then down 300,000), equities would likely rally as they have in the middle of past recessions. I recognize that the economy would still be contracting with figures like 400,000 and 300,000, but the point is that investors tend to look over the valley when they have a better sense of the trough, which is what is needed to gauge the depth and duration of the recession, a critical part of mid-recession rallies.
P.S. Will you be there when Cramer makes his next move?
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Tony Crescenzi Blog Mortgage Applications Surge 12/24/2008 10:25 AM EST Recent data suggest that there is potential for relief in the housing crisis.
Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic, The Money Market,
first published in 1978 by Marcia Stigum, and The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.
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