Even Wal-Mart is Having Trouble

Last week’s better-than-expected payroll data is being offset by new jobless claims today. 558,000 people filed new claims for unemployment benefits. That was more than the median estimate of 545,000. 

The number of people collecting unemployment fell by 141,000 and that lowers the unemployment rate. That sounds good, but I don’t think it is. Most likely, benefits for these 141,000 have run out. So what little money they had coming in is now gone and they’ve just stopped asking. 

Interest Rates and Inflation

The next 12 months look great. Economists are now raising their GDP expectations for the U.S. economy to a minimum of 2% growth for the next four quarters. That’s a significant improvement to what they were expecting just a few weeks ago. (One thing to keep in mind however, is that this is moving target, one week they’re doom and gloom and the next it’s all sunshine.) 
The reason should be clear – cheap money and stimulus spending is kick starting both lending and spending, albeit from low levels. 


Analyst Downgrades Drag Down Stocks

Have you noticed that analysts are starting to downgrade stocks? Sprint Nextel (NYSE:S), Yum Brands (NYSE:YUM), PETsMART (Nasdaq:PETM), MBIA (NYSE:MBI) and Aegon (NYSE:AEG) were all marked down by analysts yesterday. 
Coverage was initiated on American Express (NYSE:AXP) at "Sell" by Ladenburg Thalman. Boeing (NYSE:BA) and Research in Motion (Nasdaq:RIMM) have also been downgraded in the last few days.

Is There Evidence That We’ve Passed the Bottom?

Nobel Prize winning economist Paul Krugman thinks August is the trough month for the U.S. economy. And yes, he is reading a lot into the improved unemployment numbers from July. 
Of course, it took trillions in direct spending, guarantees and loans to do it, but he believes we’ve got actual growth coming. It’s worth noting, too, that Krugman estimates the stimulus plans have saved 1 million jobs. So, without the stimulus, unemployment would be around 12%.

Unemployment Numbers Boost Friday’s Trading

The unemployment rate…fell? 247,000 people lost their job in July and that was enough to push the jobless rate down to 9.4% from 9.5%. 
July was a lot better than June, when 443,000 people lost their jobs. And the talking heads are already saying its more evidence that the economy is stabilizing. 

Where is the Downside in the Market?

Stocks rallied out of the hole yesterday, as expected. It should be clear now that government intervention in the financial markets is supporting asset prices across the board. That includes cars, houses, stocks, bonds – you name it.
Now, I don’t mean to suggest that economic fundamentals support current stocks prices. Most likely, earnings expectations and valuations are getting a little out of whack. Barron’s has the P…E ratio for the Dow Industrials at 14.76 and the Wall Street Journal says it’s 15.03. And forward estimates are about the same. In the current environment, that’s fair value at best. 

Is the Only Way to Make Money to Earn It?

Oil prices are slightly lower this morning. That should mean stocks will trade lower today as well. And while many are saying the fundamentals of this economic recovery do not support current prices for stocks or oil, I wouldn’t get too excited about an imminent trade-worthy decline. 
More likely, we will see any dip get bought by the bulls. And I doubt any dip will last for more than two days…