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Market's biggest problem -- unemployment -- showing signs of improvement By Gregory M. Drahuschak Tribune-Review
August 24, 2003
Whether it's squeezing in a last-minute vacation, cramming in a few extra tee times, or merely sitting back and relaxing during the final week of the traditional summer season, this week most people's minds will be on things other than work -- or the stock market.
For anyone who forgot about the market this summer, this week might be a good time to assess what you missed, and what you might need to do to recoup some of the lost opportunities.
Procrastination this summer has been costly. Although it was anything but a smooth path, from the end of May through the middle of last week the Dow Jones Industrial Average, the Nasdaq Composite Index, the Semiconductor Index and the Dow Jones Transportation Average posted respective gains of 7.13, 11.72, 13.52 and 7.91 percent.
But the market is never short of things to jar investors, in good or bad times.
After the last of the charcoal dies out from next weekend's cookouts and kids are back in school, the market might have to stare one more time into the face of a nemesis that plagued it all through the summer.
The single biggest deterrent for the market was the employment situation. For the last five weeks, however, initial unemployment claims finally moved and stayed under 400,000.
The period immediately after Labor Day often is one of the heaviest in terms of layoff announcements. As companies sift through their pending budgets for the next year, needed cuts often are satisfied by budgeting worker furloughs for the next year. The fact that the job losses might not show up until January is little solace for the market or those slated to join the ranks of the unemployed.
But there could be silver lining in the employment situation.
Industries that have suffered the greatest pain in the recent business malaise, like technology and telecommunications, already have pared staff notably. The action of the semiconductor stocks seems to suggest that the worst is behind that industry. Massive job cuts in the wake of the worldwide telecom contraction handled most of that sector's employment contraction, also.
Evidence of a pick up in industrial output suggests that layoffs are less likely than might have been true when summer began.
The dawning of fall, however, might frighten investors who remember that it is September, not October, that holds the dubious distinction of typically being the market's worst month of the year.
And so it was last year when the Dow fell more than 1,000 points (roughly 12.4 percent) and in 2001 when the Dow fell more than 11 percent in September. The drops in 2000 and 1999 offered relative blessings with losses of only 4.08 and 5.29 percent, respectively. In the last 20 years the Dow has been up in September only six times, and when it did post a gain none of them offset the drubbings taken in the 1999-2002 period. These data give an entirely new meaning to the phrase "spring forward, fall back."
If the market does stumble in September, the likelihood that the Gross Domestic Product for the third quarter could be notably better than anything seen in the last two years might make getting back up again relatively easy. A misstep in September also could alleviate any of the valuation excesses present in some groups just in time to enjoy the opposite end of the seasonal spectrum that the best period of the year offers from November through the middle of January.
Although Wall Street may be relatively sparsely populated this week, those who are at work have plenty to consider. New and existing home sales, durable goods orders, consumer confidence, the second-quarter Gross Domestic Product, initial unemployment claims, personal income and spending, the Michigan Consumer Sentiment Index and the Chicago Purchasing Managers Index all will be released this week.
For many individual investors these reports may be drowned out this week by the sound of crashing waves or chatter around a barbeque, but the reports may be able to resonate through the market at least until it is closer to the time you really need to remember the phrase, spring forward, fall back.
Gregory M. Drahuschak is first vice president of Janney Montgomery Scott Inc., Pittsburgh.
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