Not Quite Slow and Steady

Despite plenty of evidence that domestic demand continues to weaken, some analysts have remained upbeat on the economy (and the stock market). One reason for their optimism is their belief that dollar weakness will (continue) to power export sales (especially at the large multinational companies whose shares comprise the S&P 500 index), more than making up for the difference. However, a graph of U.S. factory orders (yesterday, the Commerce Department announced better-than-expected data for May) vs. the U.S. Dollar Index suggests the relationship may not be what it was.

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Today, the Bureau of Labor Statistics released its monthly employment report for June. Although the change in nonfarm payrolls came in at -62,000, in line with expectations, the figures were once again bolstered by a striking “birth/death” adjustment. According to the BLS, new businesses created a net 177,000 new jobs last month, with leisure/hospitality accounting for 86,000 and construction chipping in 29,000 (sounds like their statistical methods need some serious adjustments of their own). Regardless, one reading of the data suggests the U.S. is not only in recession, but that the downturn will continue for at least two more months.

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Yesterday, the media made a big deal out of the fact that the Dow Jones Industrials Average, down more than 20% from its October 2007 peak, is officially in bear market territory. Of course, if you owned the wrong sectors, you blew through that particular milestone a while ago. Below is the return (through yesterday) for the 10 S&P 500 economic sectors since the bellwether index hit its closing peak on October 9, 2007.


Return Since 10/9/07 Peak










Health Care




S&P 500










Finally, the cyclical sector, including mining, chemical and steel stocks, has been a heavy speculative favorite in recent months. However, technically at least, it looks like the tide may be turning in favor of shares that are more defensive. Below is a chart of the ratio of the benchmark cyclical index relative to the consumer index.

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Stocks ended mixed-to-higher, aided by investor relief that today’s jobs report was not as bad as some had feared and pre-holiday-weekend short-covering/bargain-hunting following the sharp declines of recent weeks.

At the 1:00 p.m. early close, the Dow Jones Industrial Average was up 73.03, or 0.7%, to 11,288.54. The S&P 500 Index rose 1.37, or 0.1%, to 1,262.89. The Nasdaq Composite Index slid 6.08, or 0.3%, to 2,245.38.

August gold last traded at $936.00, down $10.50, while the Dollar Index rose 1%. The U.S. currency was aided by dovish comments from European Central Bank President Jean-Claude Trichet about the future outlook for European interest rates following today’s widely expected quarter-point hike (to 4.25%) in the ECB’s benchmark lending rate. Ten-year Treasury bond yields rose two basis points to 3.98%.

Michael Panzner

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Author, Finance Faculty Member
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