Wednesday, January 7, 2009

Stocks Slammed on Bleak Employment Numbers

Why investors were surprised at the wickedly bad numbers contained in the ADP National Employment Report [PDF] is a mystery. That they sold off stocks in such a panicky manner is testament to the futility of US equity markets in what eventually will be known as either "The Second Great Depression" or "The Greater Depression" or something even more depressing.

After the US Dept. of Labor recorded over 500,000 job losses for November, and traders fretfully awaited the Non-farm Payroll report on Friday, private firm ADP beat everyone to the punch by a couple of days. It should be noted that ADP's figures are probably more reliable than the overly massaged and managed government numbers since ADP processes 1 out of every 5 private payrolls in the US and they have no vested interest in working the figures one way or the other.

The report, released prior to the opening bell, said the private sector shed some 693,000 jobs in December, a number so large that it defies usual comprehension. It's like putting the entire adult population of a large population center - think Dallas or San Diego - out of work in just a month's time. The devastating loss of jobs, most in the retail and service sector (we've already decimated the goods-producing sector) is the furtherance of the great unwinding and destruction of the US economy.

Looking outward, all those lost jobs will ripple across the global economy, affecting every other nation from Denmark to Thailand to varying degrees. In the long run, nobody is going to be spared from the massive destruction of wealth through stock losses, and declining values in all asset classes.

Dow 8,769.70, -245.40 (2.72%)
NASDAQ 1,599.06, -53.32 (3.23%)
S&P 500 906.65, -28.05 (3.00%)
NYSE Composite 5,799.05, -169.79 (2.84%)

Of course, today's losses are only the beginning. The Dow and fellow major indices have been on something of a rally recently, and, having chalked up a huge gain on Friday, January 2, the first day of trading in 2009, are close to falling into negative territory for the year. The Dow already has, though only by a few points. This sudden reversal of fortune has surely caused some degree of consternation for the few bulls still standing, hoping for "recovery" before we've even hit bottom, but the sea change in sentiment is representative of bear markets, in which markets turn on a dime, or a whim, or, like today, on actual bad news.

As expected, declining issues far out polled advancers, 5071-1566, though that spread isn't even close to what it should be. A 3-1 ratio on a day like today, dominated by bad economic news, a warning from Intel and on the heels of Alcoa's announced layoffs of 13,000, is ridiculously short of expectations. How a quarter of companies can be seen positively is a question only those bidding them up can answer, but it speaks volumes to the lack of understanding of the seriousness of the malaise by market participants. New lows again beat back new highs, 86-18, and, since that trend has yet to be reversed, more declines in the indices - and individual stocks - are to be expected. Volume was not high, but on par with Tuesday, an improvement, though possibly this level is becoming the new normal.

NYSE Volume 1,233,276,000
NASDAQ Volume 2,060,124,000

It wasn't just equities taking a beating. Commodities suffered severe losses, especially oil, which fell $5.95, to $42.63, a 12% drop, on futures exchanges. Gold dropped $24.30, to $841.70, with silver dipping 34 cents, to $11.11. The deflationary environment is taking no prisoners, though the metals are likely to fare better than most asset classes. Incidentally, all food-related futures suffered substantial losses.

It's a good thing that food and fuel are getting cheaper by the minute, as those are just about the only things many people are going to be able to afford for some considerable time. Amazingly, the US economy has yet to reach rock bottom. That could be as long as a year or two away, but for many, including the more than ten million Americans who are already out of work, this winter surely must seem like the worst of times.

It's getting worse, a lot worse, and it's not going to get better any time soon.

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