Jobs let the market down again

Stock fell out of bed after yet another disappointing jobs report. But while sluggish, we are still in a very slow recovery.  The interesting thing will be to see how this plays out over time.  We’re four years into this recovery and under normal circumstances we should be on the lookout for a market and economic correction in our near future.  This is the boom and bust cycle typical of free markets.  So we need to ask ourselves, is this a normal economic recovery?

Economic boom and bust cycles are a factor of human nature.  Our minds like to project straight lines into the distant future as we expect conditions to remain stable.  No doubt we’ve all experienced this phenomena in the stock market as traders, but the same thing equally applies to business owners and managers out in industry.  When business is good, they anticipate it will continue indefinitely and they ramp up capacity and employment in anticipation of future growth.  Get a larger number of managers anticipating a rosy future and we become vulnerable to an economic correction as businesses find themselves over-staffed and start layoffs.  Fewer employed means fewer customers means more layoffs and the cycle continues until companies can’t afford to cut any more staff.  The economy is like a yo-yo going up and down overshooting on the high side and then on the low side.

So what does that mean for us right now?  I see a pathetically slow recovery and that might change how this boom and bust cycle plays out.  It would be hard to argue we are in the middle of an overly optimistic boom cycle.  The last several years have been full of nerve-wracking headlines and paranoid managers would rather sit on their hands than put their neck on the line and risk getting their head cut off by some unanticipated economic catastrophe.  This restraint on the part of business might actually keep the economy from overheating in its typical way.  This conservatism by business might allow this recovery to extend far longer than normal and there could be a lot more upside before we hit our next euphoric peak.

As I shared before, we could be in the start of a 10 or 15 year secular bull market and that is because business, banks, and investors are so overly pessimistic and restrained after the first 10 years of this century.  Companies are hording cash and the 10 year treasury is yielding far less than 2%.  That isn’t even keeping up with inflation!  There are deep wounds in people’s psyches and it will take a good long time for them to be excited about the markets and economy again, but it will happen over time and for those who have the courage to invest for the long-term in these uncertain markets will be hugely rewarded.  The market is up more than 100% from its 2009 lows and that is just the start of the move we’ll see over the next 10 years.

The US carried much of the world economically and technologically since the end of WWII, but now the rest of the world is catching up to us and the world will have ten times as many inventors, entrepreneurs, and middle class driving the 21st century economy forward.  It isn’t that the US is losing its edge, but that the rest of the world will now start contributing ideas and innovation.

But for the near term, I expect one more shakeout at the lower end of the June’s trading range before we begin our year-end rally.  Our election, Europe and China will start falling into place and the market will start rallying as many of those issues are finally put to bed.

Stay safe