Why 10% jobless rate means misery for many, buying opportunity for some
Filed under: Economy, Investing
As news broke that the U.S. jobless rate crossed the dreaded 10 percent mark, many investors braced for the market's reaction. The response to word that unemployment reached levels not seen since 1983? The Dow Jones industrial average closed up 17.46 points to 10,023.42 and the S&P 500 ended the day at 1,069.30, up 2.67 points. Not exactly a sell-off.So did news on Friday of 10.2 percent unemployment represent a buying opportunity? For those who follow market trends, it did.
Although the labor department said the country in October lost 190,000 jobs -- or 15,000 more than expected -- active traders in the market keyed in on another unemployment statistic: the monthly revisions of unemployment results. That's when government statisticians, armed with more complete data, go back and and revise up or down previous months' unemployment figures.
Randy Frederick, director of trading and derivatives at Charles Schwab (SCHW), says it's true that 15,000 more jobs than expected were lost last month. Not good. But, he says, the government also revealed Friday that there were 47,000 fewer jobs lost in August than previously expected. And in September, the government had overstated the job losses by 44,000. "So if you net the three together on a three-month basis, then you're 76,000 better than expected," said Frederick. "The markets probably didn't have that built in."
Frederick said that although the news was bad, traders react to trends, and the trend has been that the unemployment numbers have gotten progressively "less bad" each month. The improved unemployment revisions indicate that unemployment is flattening out faster than people thought, which is good for the market.
"The market may not have reacted as sharply in either August or September because those numbers were weak, but now that we know those numbers were reported weaker than they really were -- to me it's a comfort for the market going forward," he said.
But Frederick cautioned the reaction to 10 percent unemployment was not over, and investors should be prepared for what happens on Monday.
"The people who actually have regular jobs and aren't actively engaged in watching the market every minute are going to wake up Saturday and see on the front of every major newspaper in the country -- 10.2 percent unemployment highest since 1983 -- and I think that could spawn a rout of profit-taking come Monday morning," Frederick said.
The psychological affect of reaching 10 percent unemployment may send some investors fleeing. But Frederick says that dip could provide a buying opportunity. "It's nothing to be cautious about like an end of the rally, but there is some potential weakness there."
The weakness he talks about is temporary because Frederick believes the current bull market run still has legs due to another trend. In the last four months, the markets have begun rallying before losing steam after the options expiration date through to the end of the month. That pattern was kept intact, as the market was up modestly this week. The month's options expiration date is on Nov. 20.
If the trend continues, it could be a buying opportunity.



























Reader Comments (Page 1 of 6)
11-07-2009 @ 12:49PM
clarence swinney said...
Rape of Middle class from 1980 to 2009
SOLUTIONS--
A. Remove Social Security Cap--Why should very rich pay 1/1000th and Middle Class pay 6.2%
B. Increase Dividend Tax from 15 to 28%. Capital vs Labor. Be Fair.
Coal Miner pays 28% and man sitting on butt pays 15% Labor is as important as capital.
Try doing without either.
C. Estate Tax Increase.
D. Increase Corp profit Tax.
E. Public Finance Elections.--Candidate cannot use any money except that given by the public.
F. Wall Street—Revert back to selling stock to raise funds for corporations to create jobs. Eliminate the operations which are mere Gambling in a Rich Man’s Casino. Want to gamble go to Las Vegas.
Those suggestions will return us to Democratic Philosophy of PAY YOUR WAY.
Go away from Republican philosophy of-- Spend and Borrow Let Kids Pay Tomorrow.
1945 to 1981--Each percentile increased in Wealth and Income almost evenly in percentage.
Reagan big tax cuts of 60% (70 to 28) for Richest, 40% to Big Corporations -Dividend Rate for Wall Street.
Tax Increases of biggest in history the Social Security Tax Increase--A Tax on elderly on 50% of Social Security Income--Five cent tax on Gas.
Bush Big Tax cuts for Very Rich.
RESULTS
from 1980 to 2007
Top 1% got 35.4% of Total Wealth Increase
Top 1% got 44.1% of Total Income Growth
In 2007 a not so pretty picture
NET WORTH
top 20% owned 85% of Total Wealth and bottom 80% owned 15%
Of nonhome wealth top 20% owned 93% and 80% owned 7%
top 20% got 60% of Total Income and 80% got 40%
It is a disaster for the future of the huge Middle Class. A small few own the majority.
Will we ever get a Congress and President willing to do what is FAIR.
Redistribute the Income and Wealth.
I fear for our future.
clarence swinney
political historian
Lifeaholics of America
Reply
11-07-2009 @ 5:58PM
mjmecon said...
How stupid are you. The problem is goverment is to big on all levels. If you live in Arlington Virginia goverment takes 44,000 per family per year. How about this, cut goverment in half, and give that money to the families they stole it from. You have to give the free market your money. The goverment takes it, or you go to jail. Big goverment is the problem, where the Hell has the 4 trillion the Dems have spent this year gone. Vote libertarian, politicians suck.
11-07-2009 @ 7:30PM
teltech543 said...
The only way to stop the carnage is to put a middle class blue collar worker in the WHITE house. One. Pull the troops out of everywhere. We are not a police force. If they want to off themselves let them. Two. No more foreign aide of any kind. We are not a bank. Three. Disband all unions of any kind everywhere. Their usefulness has expired. Four. Even out the trade between countries. You sell us $1M worth of goods. You have to buy $1M worth of goods. Five. Get rid of ALL illegal aliens. Not just Mexicans. Every last one of them. Six. Speed up the process to lessen dependency on foreign oil. Invest in renewable resource technology. If these steps were to be implemented the USA could balance it's budget in less than 2 years. It would also be able to eliminate the national debt.
11-07-2009 @ 7:34PM
dan said...
Even in the 29 depression productivity increased due to layoffs...We are headed for a jobless recovery because of transnational corporations rule your government, you know, the government who is elected to represent you. Outsourcing started with Jack Welch and every Republican has supported it along with the corporate Democrats, as Bill Clinton did.
In 1973 was when exports started to decrease and imports began to infiltrate our shores, and it has been out of balance since then. Why? In 1948 GATT was passed which reduced America's tariffs from 29% to 15% and things got moving toward globalism and the export of jobs from this country. Since then tariffs have been reduced to around 5%.
However, we could have been in a better position if we had an economy more closely to that of Germany's pre 1990. Corporations are made by the government to be productive and competitive, by not allowing them to become monopolies, and therein lies the difference.
You see, if the neocon Republicans and the corporate Democrats were for free enterprise they would break up the monopolies in health insurance, gas and oil, auto industry, etc. and allow small companies to grow and prosper without being bought and sold with debt by their competitors. But they're not.
They are being bought by the corporatists pimps to say big government and taxes are the problem to growth. It's mainly the libertarians of the Ayn Rand ilk that believe that no regulation and big government is the problem. If that were true, why do we have a banking failure and no competition in health insurance, gas prices, pharmaceuticals, after years of tax breaks and deregulation and on and on.
Because they get their campaign contributions from them to keep things the way they are. It's time to change our elections to public funded elections and make it illegal to take any money from anyone..............
11-07-2009 @ 7:39PM
really??? said...
President Reagan.... 4% unemployment rate. All of your 'facts' are slanted as is your politics.
11-07-2009 @ 9:59PM
Paul Patriot said...
You are right on the money! Unfortunately I believe that your math is a calculated and diabolical plan. A concerted effort has been taken by the powers that be in charge to create a wellfare nation in order to control the population. The fix is exactly what you propose except that the politicians are all in on the plan. Bloody revolution is the next step in the process and it is already defensed against with the patriot act. Good luck and great post.
11-07-2009 @ 9:48PM
Patricia said...
Dear Mr. Swinney:
I appreciate your comments very much. Fox and other commentaries tell us how bad it is going to get the government is very ratical but no one is telling us what to do. Buy gold and silver, store food, write to aall the congressmen but the tornato of global control is coming like a sumani?????????? I thought about trying to move to New Zealand you have to have an expensive resume to get into this country Israel the same where can one go for safety?
11-08-2009 @ 3:06PM
Stupid Is as stupid Does said...
Clarence is FAR from stupid. The statistics are VERY real. Anyone can access them from our own governmental agencies. Most will not because they are too lazy to learn how to think for themselves: "RUN FOREST".
11-09-2009 @ 1:27AM
Will said...
Businesses located in USA (none are American businesess as they are privately owned and not property of the state), are choosing to relocate their key employment centers in places in the world that do not beleive the creators of all wealth and income (businesses) are a bad thing. Nobody with a brain is starting to build new businesses in USA (the only source of job growth) as they are building in China and other places that want to grow and prosper. In other words, we are taking our cheese out of your reach and you will not get the money you think you will from teh rich or businesses - you are screwed.
11-07-2009 @ 1:50PM
Samir Semaan said...
What I said six months ago and what Billionaire Warren Buffet said recently that american people are saving money but they don't spend extra than they need because they don't trust Wallstreet and the administration are not doing enough to infuse consumer confidence in the system and sometimes the american people don't trust the banks that they will lend them money. So the solution is for the Administration to take decisive action now since we are coming near the holidays or they will miss this opportunity by invoking the economic powers act that the president will be allowed to establish new task force led by the Federal Bureau of Investigation.
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11-07-2009 @ 3:23PM
Charles Hugh Smith said...
It seems the real economy and the stock market can diverge for quite some time.
Reply
11-07-2009 @ 5:19PM
Bill said...
My goodness the lower income people are angry.
Reply
11-07-2009 @ 5:29PM
dave said...
jobless rate will be over 13% obama has no tax cuts ,so why should anyone create any jobs, i have never heard of a poor person create any job --------dont show a profit, obamas czars will put a big bulleye on your company,,, this is to bad because there is no reason why the usa is not running full speed obama has his foot in the way !!! hows that hope and change do for you!!!
Reply
11-08-2009 @ 12:44PM
USAFHG said...
Rich people are creating jobs with taxpayer money. This is socialism, not capitalism. In a capitalistic democracy, rich people should only be credited with creating jobs through profits from the technological advancements they make that create a demand by the public for their goods and services.
Poor people create jobs by spending a greater percentage of their disposable income, thereby increasing demand for the goods and services of private enterprise. Give a poor person the same amount of taxpayer money that the government is throwing at failed corporate enterprises and they will create jobs too.
11-07-2009 @ 6:30PM
Enrique said...
What kind of fools do these liberal spenders think we are? The unemployemtnrate is really 17% except we're not counting people who gave up looking for a job , and people who ran out of benefits.
I challenge Mr. Scott to reveal how much money he will make if the people reading this column buys stocks come Monday morning!
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11-08-2009 @ 7:31PM
george said...
It was under regan when the way we count unemployment was changed
11-07-2009 @ 6:48PM
ron said...
You are 1000% correct.
I admire your tenacity and your thoroughness and of course your insight.
Reply
11-07-2009 @ 7:03PM
tom said...
One more thing about President Regan. To pay for his tax cuts he took away from the working person the interest on their credit cards, car loans, States sales taxes, etc. Cost me around 400.00 a year in federal taxes.
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11-07-2009 @ 7:18PM
Fair Minded said...
"Potential weakness" in the market? The market is way over
valued. Wait until January after a horrible holiday shopping season. Retailers bring in about 50% of their annual revenues during the Christmas season. Not this year, with millions of people out of work, and millions more standing on a bananna peel, also ready to lose their jobs!
Only a fool would bank on the recession being over. Unemployment is already between 20-25% if all the factors are considered. Tax revenues are way down. State and local governments are dying for revenue right now. How about 15 million mortgages under water, with another 7 million about to be foreclosed on? National debt out of control?
No, we are no where near the bottom right now. The market is a house of cards ready to collapse. Things are very bad right now.
Wait until Obamacare gets passed. "Free" healthcare costing billions of dollars that we don't have. This government is in shambles.
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11-07-2009 @ 7:49PM
john said...
how the hell are we going to dig ourselves out of this mess ?
is there anyone out there that has a clue ? great comment Clarence
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