On the heals of yesterday’s stunningly positive ADP National Employment Report (+157, 000 total employment), the S&P 500 rallied over 1%. It takes surprisingly little these days for the market to jump into the “risk on” trade with both feet. Never-mind the fact that the ADP report has proven to have the predictive ability of a ouigi board (May 2011 excepted). This morning, Labor Department figures painted a different picture, with U.S. employers adding only 18, 000 jobs in June. They also revised May’s figure downward by over 50% to 25, 000. At the same time, the unemployment rate reached its highest level in 2011 — 9.2%.
This, from the NFP report: “Nonfarm payroll employment was essentially unchanged in June (+18, 000), and the unemployment rate was little changed at 9.2 percent, the U.S. Bureau of Labor Statistics reported today. Employment in most major private-sector industries changed little over the month. Government employment continued to trend down.”
As this post is being typed, the markets have given back yesterday’s gains, but remain solidly in positive territory for the month (+2.5%). The resiliency of the markets in light of recent employment reports, sub 2% GDP growth, the European debt crisis, the looming debt ceiling, three melted-down nuclear reactors in Japan, the end of QE2, and continuing declines in housing prices is quite notable.
Going long in this environment means fighting an overwhelmingly negative macro environment. Going short in this environment is nothing more than fighting the tape in a world where “buying the dips” has become the traders’ mantra.
We continue to think that sourcing returns from areas other than market beta makes the most sense for the near-term.