The Markets This Week
STOCKS TRUDGED TO THEIR highest level in 10 months, lifted, if not exactly liberated, by an unexpected question: Have employers cut jobs too drastically during the recession?
All week the major indexes had made only plodding progress as the stock-market rebound entered its sixth straight month. But an apprehensive market looking for an excuse to sell was thwarted by Friday's surprisingly strong jobs report showing employers cutting 247,000 jobs in July, far fewer than monthly tolls pushing 700,000 earlier this year.
Even optimistic economists had expected unemployment to increase, and one of the market's central assumptions — and worries — is that unemployment will climb well into 2010. So the unemployment rate's marginal but surprising decline to 9.4% from 9.5% raises the notion that layoffs might well peak sooner than expected.
That helped stocks begin August with another show of strength. The crop of stocks pushing to fresh highs for the year at the New York Stock Exchange and Nasdaq had recently swelled into the triple digits and reached 215 on Friday, compared with just two plumbing fresh lows, and the Dow Jones Industrial Average ended the week up 198, or 2.2%, at 9370. The Nasdaq Composite Index reached an even 2000, up 22, or 1.1%, for the week, while the Russell 2000 added 16, or 2.8%, to 572.
Cutting jobs helped companies stay profitable during the recession, and July's layoffs point to the long road back to job growth. But companies that cut jobs too far too quickly during the downturn will have to hire eventually, as demand for goods and services recovers. And lately, economists have been nudging up their growth forecasts — partly as auto makers rev up production to meet demand stirred by the government's "cash for clunkers" program, and as companies that had cut inventory too much rushed to re-stock. Goldman Sachs, for example, raised its forecast for second-half GDP growth to 3% from 1%. UBS pushed its third-quarter target to 2.5% from 2% and the fourth quarter's to 3% from 2.5%.
Investors see looming threats ahead: more layoffs once government-stimulated growth falters, higher taxes, crippling inflation. The improvement in sentiment also invites concern, as a survey shows the percentage of bullish individual investors pushing above 50% for the first time in more than a year.
But "investors are not long, earnings are being revised up, inflation is likely to come in lower than expected, VIX and credit spreads are back to pre-Lehman levels and valuations are broadly neutral," says one Wall Street strategist. "Our year-end target on the S&P 500 is 1050 — and we would not be surprised to see 1100." (Source: Barrons Online).
All week the major indexes had made only plodding progress as the stock-market rebound entered its sixth straight month. But an apprehensive market looking for an excuse to sell was thwarted by Friday's surprisingly strong jobs report showing employers cutting 247,000 jobs in July, far fewer than monthly tolls pushing 700,000 earlier this year.
Even optimistic economists had expected unemployment to increase, and one of the market's central assumptions — and worries — is that unemployment will climb well into 2010. So the unemployment rate's marginal but surprising decline to 9.4% from 9.5% raises the notion that layoffs might well peak sooner than expected.
That helped stocks begin August with another show of strength. The crop of stocks pushing to fresh highs for the year at the New York Stock Exchange and Nasdaq had recently swelled into the triple digits and reached 215 on Friday, compared with just two plumbing fresh lows, and the Dow Jones Industrial Average ended the week up 198, or 2.2%, at 9370. The Nasdaq Composite Index reached an even 2000, up 22, or 1.1%, for the week, while the Russell 2000 added 16, or 2.8%, to 572.
Cutting jobs helped companies stay profitable during the recession, and July's layoffs point to the long road back to job growth. But companies that cut jobs too far too quickly during the downturn will have to hire eventually, as demand for goods and services recovers. And lately, economists have been nudging up their growth forecasts — partly as auto makers rev up production to meet demand stirred by the government's "cash for clunkers" program, and as companies that had cut inventory too much rushed to re-stock. Goldman Sachs, for example, raised its forecast for second-half GDP growth to 3% from 1%. UBS pushed its third-quarter target to 2.5% from 2% and the fourth quarter's to 3% from 2.5%.
Investors see looming threats ahead: more layoffs once government-stimulated growth falters, higher taxes, crippling inflation. The improvement in sentiment also invites concern, as a survey shows the percentage of bullish individual investors pushing above 50% for the first time in more than a year.
But "investors are not long, earnings are being revised up, inflation is likely to come in lower than expected, VIX and credit spreads are back to pre-Lehman levels and valuations are broadly neutral," says one Wall Street strategist. "Our year-end target on the S&P 500 is 1050 — and we would not be surprised to see 1100." (Source: Barrons Online).
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