Reliance Investment Management

Stocks Continue To Do What They Do Best In 2013 – Go Higher

Another week is in the books and as with most other weeks in 2013, the stock market again finished higher than the previous week.

As a matter of fact the S&P 500 closed at a new all time record high of 1,614.

Leading the charge higher for the second week in a row were the sectors that are most sensitive to the economy such as materials, transportation and technology companies.

The S&P 500 recorded a 2% gain during the week.  The S&P 500 has now gained a remarkable 13.2% in 2013 alone.

Below is a one year chart of the S&P 500 – Note how the market rally started at the resolution of then fiscal cliff on January 1, 2013 and has not looked back since then.

(Click on Image of Chart for a Bigger Picture)

On the economic front, most reports came in slightly weaker than expected but nothing too worrisome as for the most part the reports show an economy that is still in expansion.

An exception to the slightly weaker economic reports were the job reports that were released on Thursday & Friday.  These reports came in stronger than expected and I will discuss these job reports next.

Job Market Continues To Heal (But Still Not Fast Enough)

Over the past two days, several reports were issued that provide insight into the current jobs and unemployment conditions faced by people today.  I will comment on each of these next.

On Thursday the Department of Labor released the weekly report of the Initial Unemployment Claims.  There was good news in the report as Initial Unemployment Claims came in at 324,000.  The 324,000 was the lowest number of Initial Unemployment Claims in over five years.

Below is a chart of Initial Unemployment Claims for the past 20 years that illustrates how the most recent report of 324,000 unemployment claims compares with unemployment claims in other years when the economy was stronger.

(Click on Image of Chart for a Bigger Picture)

After five long years, initial unemployment claims have finally returned to their more historical average.

On Friday the Monthly Jobs Report was released by the Bureau of Labor Statistics.  This report came in stronger than expected as the economy added 165,000 jobs in April.  This beat the expected number of 140,000 new jobs by 25,000.  Additionally, the number of jobs created in March was revised higher from 88,000 to 138,000.  Also, the number of jobs created in February was also revised higher from 268,000 to 332,000.

As soon as the Monthly  Job Report hit the wires the stock market responded immediately by moving to it’s highs of the day and the markets remained at their highs until they closed.

Additionally the Department of Labor announced that the unemployment rate came in at 7.5%.  This is the lowest unemployment rate in five years.  It is worth noting that the 7.5% is still a historically high rate for unemployment on a national basis.

Locally in the greater King County region the unemployment rate is much lower than the national average of 7.5%.  The most recent report of the local unemployment rate for the greater King County region is 5.1%

Even at 5.1% the unemployment rate for the greater King County region is still historically high at this time.  Below is a 20 year chart of the unemployment rate for the greater Seattle area.

(Click on Image of Chart for a Bigger Picture)

While it is promising to see improvement in the labor market conditions, there is still the troubling trend of an economy that continues to replace jobs that were lost with lower paying new jobs.  According to several reports I have read, the vast majority of people who have lost their jobs since 2008 and have successfully found a new job are making less money in their new job when compared to their prior  job.

Closing Thoughts

With stocks at all time highs, I recommend that caution is exercised in putting significant amount of money to work at this time.  I continue to believe that the better long term investment opportunities at this time are in the emerging market economies and China who are trading at significant discounts to their highs over the past five years.