Stocks rose from an oversold position last week, overcoming mixed economic data and anxiety over Syria to post gains. Small-cap growth equities led the way, with info tech and networking stocks continue to take a leadership role.
Aside from the Syrian drama, the back story continues to be the Fed's pending plans to taper balanced against what increasingly appears to be a confusingly mixed bag of economic data. Can the Fed afford to pull the punch bowl when the economy lacks any self-sustaining drivers of real and immediate growth?
That remains the trillion-dollar question.
. . .
The Good
Growth accelerated in U.S. services and manufacturing in August. And European data confirmed that the eurozone economy grew in Q2, ending an 18-month contraction.
While investors are distracted by Syria, Fed tapering, and the resumption of the school year, we'd remind you that the gravitational pull of the markets continues to point upwards. That's not to say that we won't face another correction following a retest of the August 2nd high. But, the trend is your friend. Until it ends.
The Bad
While the unemployment rate declined, the real data confirmed what a charade much of our regular economic reporting has become.
The DOL reported that the unemployment rate fell to 7.3%. But, claiming that victory would be the equivalent of celebrating the loss of three pounds while ignoring the fact that your body fat percentage rose by four percent. Massaged, manipulated, irrational or wrong? Regardless of how you choose to label the unemployment figures, they certainly don't reflect what's occurring within U.S. labor markets.
Friday's non-farm payrolls rose just 169,000 in August, below the expectations for a 180,000 jobs gain. Moreover, payrolls over the last two months were revised downward by 74,000 net jobs. And while the unemployment rate dropped from 7.4% to 7.3%, this farce was a reflection of the two-tenths decline in the labor force participation rate, which dropped to 63.2%. That's the lowest it has been since 1978.
In other words, 37% of the eligible, able-bodied prospective members of the U.S. workforce are not interviewing for, seeking, or even pretending to try and find a job. They've given up.
The Ugly
Syria continues to dominate headlines. After the initial bluster, one cannot help but imagine that President Obama and Secretary Kerry would like to see this off of their plates.
Syrian President Assad appeared on Sunday's "Face the Nation," having submitted to an interview with Charlie Rose. During the interview, Assad continued to deny the use of chemical weapons, and invited President Obama and Secretary Kerry to present their evidence to the United Nations.
Of all the protagonists involved in this drama, Assad may have come off as the most relaxed. Russia, the U.S. and China continue to bicker, debate and move military assets about like chess pieces, revealing the complexity involved in bringing this crisis to conclusion.
Waking up Monday, Obama faced the likelihood of a Congressional defeat. Such a setback could have crippled his presidency. However, Russia's Vladimir Putin, of all characters, appears to have bailed the U.S. administration out. Putin's proposal for Syria to submit all chemical weapons to the U.N. seems amenable to all parties, including Obama, Kerry and Assad.
This episode serves as an embarrassment to an American administration that appeared weak and indecisive, Still, Putin's diplomatic victory saves the President from the certain shame of a Congressional defeat.
Weekly Results
Major markets finished higher last week. The DJIA rose 0.76%, the S&P 500 gained 1.36%, and the Nasdaq added 1.95%. Small cap stocks climbed 1.84%. And the 10-year Treasury bond yield rose 15 basis points to 2.94%. Gold fell 4.53% per ounce.