Volatility, Correction, Jobs, Economy, Europe, Elections, Fiscal Cliff.
All words that make you a little nervous reading the headlines or opening those statements. Plenty of it this week. Today’s “market value adjustment” officially signaled a 10% correction is here, and the major indexes have given up all gains for the year.
What looked like a near, short term bottom was taken out by the
bad, horrid, less than good employment numbers. In May, the U.S. economy generated only 69,000 jobs, worse than the lowest estimate among 87 economists surveyed by Bloomberg. The poor employment data seems to be caused by a few factors, such as foreign weakness. “Europe seems to be heading for an unavoidable train wreck, and now China’s economy is slowing down. Both are bad news for U.S. exporters. Plus, there’s a chance that the European crisis could also trigger a global financial crisis worse than the one in 2008-09 that led to the first worldwide recession of the post-World War II era. “It’s pretty clear that this is a reaction to what’s going on in the rest of the world,” says Paul Ashworth, the chief U.S. economist at Capital Economics.”
The other cause is perhaps the fears of the coming fiscal cliff. Once again, unless Congress and the President act by Dec 31, the US economy will suffer a huge fiscal blow. If nothing is done, the Bush tax cuts will expires in full, as well as the payroll tax deductions. Further automatic cuts in government spending are scheduled, which will all effect the money flowing into the economy.
All in all, with these job numbers, the unemployment rate ticked up to 8.2%, which marks the 40th consecutive month of unemployment above 8%, the longest stretch since 1948.
All of these factors are driving the flight to quality, and bringing the interest rate on 10 year treasuries closer to 1%.
The upside, mortgage interest rates are coming down even further, if you can qualify. The rate on a 15 year mortgage is now approximately 3.25%.
Below are a few charts, first being the rate of job growth after a recession, the other is a stock chart of the Dow Jones for those who believe in technical analysis. Bottom line, time to be prepared if this gets worse. Contact us for your complimentary initial consultation, or a review meeting.
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