Breaking Down the Jobs Report

Once per month the BLS releases the jobs report and it tends to be the most anticipated economic number on Wall Street. Today was no different when the December report was announced.

A total of 155K jobs were created in December according to the government agency. This was slightly below estimates and in-line with what most economists had targeted for the month.

Here are the highlights and lowlights:

• The private sector created 168K jobs and the government lost 13K jobs
• Good to see it is private sector and not government
• During the fourth quarter the government sector lost 89K jobs
• The unemployment rate was revised here in November to 7.8% and it remained there in December
• The real rate is double-digits if the Americans that dropped out of the workforce were put back in. Also the same rate when Obama took office.
• Average Hourly Workweek increased by 0.1 to 34.5 hours
• Step in the right direction.
• Average Hourly Earnings up $0.07 to $23.73 - up 2.1% year-over-year
• Moving higher, but need a better annual increase.
• Labor Force Participation Rate steady at 63.6%
• When only about 2/3 of the American population that qualifies to work under this statistic are actually working it is a disgrace. And this is another reason the unemployment number is so high.
• U-6 number at 14.4%
• This is the number of people unemployed plus part-time workers that want full-time jobs and job seekers that gave up on looking for work. The number is lower than the 15.2% last year, but still way too high for a robust economic recovery.
• The average monthly jobs created in the last two years is 153K - December was right in-line
• There is not upward movement. The labor market is stagnant. At this point in time in a recovery the number should be above 300K (a number it needs to be at to keep up with demand for jobs and to bring down the unemployment number).

 

Market Recap: Sectors Affected by FOMC Minutes

One day after a huge rally for stocks the major indices traded near the unchanged line for the majority of the day. When the closing bell rang it saw the S&P 500 down 3 points or 0.23%.

The big news of the day was the early afternoon release of the minutes from the latest FOMC meeting. The tone became more hawkish, suggesting that QE may end sooner rather than later and that affected the entire market. Here is how certain asset classes were affected.

• Stocks moved from modest gains to the lows of the session before a slight bounce into the close. The reasoning behind the selling was that the Fed floor that has been built into stocks may be ending in late 2013.
• Gold took an even bigger hit, the SPDR Gold ETF ($GLD) closed down 1.2% and wiped away yesterday's gain. As the printing of money comes to a halt it should be a boost to the U.S. Dollar and thus negative for gold.
• U.S. Dollar rose as measured by the PowerShares US Dollar Index Bullish ETF ($UUP). The ETF finished the day up 0.8% at a new one-month closing high.
• U.S. Treasuries fell in value as yields pushed higher. When the Fed stops artificially keeping rates low it will lead to a rise in interest rates on government issued bonds and the values of the underlying bonds will fall. The iShares Barclays 20+ Year Treasury Bond ETF ($TLT) fell 1.35% and closed at the lowest level since May 2011. The ETF is now down 11% from a July 2011 high. On the flipside, the ProShare Ultrashort 20+ Year Treasury ETF ($TBT) rallied 2.7% to a new multi-month high.

The Big Two both hit new 52-week highs today. General Motors ($GM) and Ford ($F) reported better than expected December sales figures and investors pushed the stocks to new highs.

A mixed bag as far as sectors today. The Transports ($IYT) broke out to a new 52-week high, led by the Airlines ($FAA) that surged 1.7%. The Pharmaceuticals ($IHE) also had a solid day with a gain of 1.1%, but they are well off their yearly high.

The Airlines are an interesting group because even as the price of oil has picked up recently, the Guggenheim Airline ETF ($FAA) continue to hit new highs. We recommended buying $FAA a few months ago for subscribers to The ETF Bulletin and since that time the ETF is up 23%!!

If you would like more info on becoming a subscriber to The ETF Bulletin please call 1-877-383-7366 or email info@pennfinancialgroup.com 

Muni Bond Rally will Continue

Municipal bonds were able to come out a winner after the Fiscal Cliff deal was finalized. Not only did the municipal bonds remain tax exempt, the increase in the top tax bracket is also a bonus for muni bond investors. Here is a breakdown:

• The Fiscal Cliff deal extended the tax exempt status of municipal bonds - POSITIVE FOR MUNIS
• The increase in the top tax rate back to 39.6% (the Clinton era) makes the tax exempt investments ever more attractive for the wealthy - POSITIVE FOR MUNIS
• The more spending by the government will require the Fed to continue to keep interest rates artificially low, thus making the yields on munis the better option - POSITIVE FOR MUNIS

The bottom line is that municipal bonds continue to be a significant part of the portfolio building process at Penn Financial Group. Just over a year ago when Meredith Whitney was calling for the muni bond market to implode - I was on Fox News, Fox Business and quoted in the NY Times and NY Post telling people to buy. I was right and I am once again suggesting you continue to hold onto municipal bonds.

The two ETFs we have owned for years for client of PFG are:

• iShares S&P National Municipal Bond ETF ($MUB)
• Market Vectors Municipal High Yield Bond ETF ($HYD)

For more information on how you can use municipal bonds and other income-producing investments please call the office at 1-877-383-7366.

Two Stocks on our Buy LIst

The markets are holding steady an hour into trading based on a strong Jobs Number released from ADP ahead of tomorrow's government number. The 215 jobs created in December, according to the report, was the highest since February. This puts the total jobs created in 2012 at 1.7 million, even as manufacturing jobs continue to be lost (6 consecutive months).

The S&P 500 is currently down 0.2%, an impressive feat considering the big rally yesterday and the talk of profit-taking in the last few hours. I do believe the market continues to move higher, however the odds of a pullback are above average. We continue to build our Buy List and will look to allocate more cash into new stocks/ETFs in the coming weeks.

Here are two examples of stocks that are on the potential Buy List:

1. Walker & Dunlop ($WD)- Provides commercial real estate financial services for owners and developers of commercial real estate in the US. Stock is breaking out of consolidation pattern and has an attractive PEG ratio of 1.08.
2. Oceaneering International ($OII) - Offshore drilling company should see a boost in 2013. The chart is similar to $WD and is breaking out. The PEG ratio is 1.05 and the stock pays a 1.4% dividend.

Market Recap - Now What?

The only news that really mattered today was the Fiscal Cliff deal that sent stocks higher on the first trading day of the year. (More on the Fiscal Cliff deal in a previous blog post.)

A late day surge in equities put the US stock indices near the best levels of the day when the closing bell rang. The S&P 500 closed up 2.5% at 1462, only a few points away from a new 5-year high. The small-cap index, the Russell 2000, shot up 2.8% and closed at the best level ever!

Small-Caps Lead - Leading the way in the Russell 2000 were:

• Zipcar ($ZIP) - Company being bought by Avis Budget Group ($CAR) for a huge premium and the stock rallied 48%.
• Carriage Services ($CSV) - The morbid operator of death-based services hit a new multi-year high today with a gain of 13%.
• Marlin Business Services ($MRLN) - The commercial equipment financing company rallied 10% and is closing in on a new all-time high.

Best Performing Country ETFs - The SPDR S&P 500 ETF ($SPY) that tracks the US market was up 2.5%, but a handful of other countries did even better on the first day of trading in 2013.

• Market Vectors Vietnam ETF ($VNM) - rallied 5.3% and closed at a multi-month high as money found its way into the "risky" country.
• Global X FTSE Argentina ETF ($ARGT) - another risky and underperforming country is Argentina and today saw a bounce of 4.3%.
• Market Vectors Egypt ETF ($EGPT) - the rollercoaster ride that is Egypt followed the path of the first two countries with an oversold bounce of 3.8%.
• iShares Mexico ETF ($EWW) - even thought Mexico did not keep up with the US today, the country's ETF closed at the best level ever after rallying 1.8%!

Now What? - Time to sell or is it time to ride this wave of buying? That was the number one question I received today from individual investors. My gut reaction to hold for the rest of this week as I believe there will be continued buying into the weekend. At that point I will have a couple days to analyze the charts and some individual stocks/ETFs to make a better determination of the next move in the market. I continue to feel new all-time highs will be set on the major US stock indices and therefore the bias will remain bullish. The only difference could be some selling of lagging positions into the recent rally to free up cash for new and better opportunities. Stay tuned.

ETF Portfolio Updates

The New ETF Bulletin that was launched on 6/8/12 ended the year on a strong note. The 2 ETF-Only Portfolios are both well positioned to continue their strong performance in 2013 and beyond.

The ETF Rotation Portfolio is an all-ETF portfolio that uses a mixture of the PFG Top-Down Approach and Technical Analysis to position the portfolio in a way that attempts to beat the market in both up and down trends. Since it began on 6/8/12 the ETF portfolio is up 10.67% versus a gain of 7.57% for the S&P 500.

The 3.1% out performance in less than 3 months is significant in nature. And when considering the lowest amount of cash the portfolio had all year was 16.7% at year-end, the risk-adjusted out performance is even more impressive.

The chart below shows the path the ETF Portfolio has taken to beat the S&P 500. They key was not falling as hard during the November sell-off. This allows a portfolio to snap back much easier when the selling ends.

 

The other portfolio, ETF Income Portfolio, has an objective of generating income for investors. The current yield on the portfolio is 6.0%, well above the 10-year treasury and most corporate bonds. The gain for the portfolio since 6/8/12 was 6.05%. Not surprising the portfolio is lagging the S&P 500 this year. The goal is not to beat the market; the goal is to provided steady above-average income with the potential to capture some of the upside of the stock market and more importantly to hold up better during any market sell-offs.

Take a look at the performance chart below. Besides the sell-off in November the Income Portfolio has been moving slow and steady, just as we designed.

 

If anyone is interested in learning more about The ETF Bulletin and would like access to the ETFs that make up the 2 portfolios please inquire at info@pennfinancialgroup.com or call 877-383-7366.

Not only do you get the 2 portfolios, but also real-time emails when to buy/sell the ETFs we cover.

AND for investors that sign up in the next 2 weeks you will get the 10+ page PFG Client 2013 Market Outlook with stock and ETF picks for the new year.

Happy New Year!

Team PFG

Fiscal Cliff Deal Kicks off 2013

Stocks surge to a gain of 2% during the first few hours of trading in 2013. The catalyst is none other than the resolution of the Fiscal Cliff that has been looming over the market for over a month.

While the news was taken as a positive by investors, there is still a lot that needs to get done in regards to the U.S. economy. The deficit is still an issue and the big headline we will be dealing with next is the Debt Ceiling debate.

With that being said, I expect the market to hold onto the gains today on the back of the Fiscal Cliff news, however the rally may be short-lived as investors begin to focus on the Debt Ceiling. I expect heavy volatility in January and the pullbacks should be used as buying opportunities.