The official non-farm payrolls (jobs) report for June was released this morning. We've been warning readers in the markets wraps that if the number misses expectations stocks will sell-off. Sure enough that's what happened. Now the move might be somewhat exaggerated by light, pre-holiday volume with many market participants already on their 4th of July holiday weekend.
Economists were expecting the U.S. economy to lose between 355,000 and 363,000 jobs in June. The Labor Department said we lost 467,000 and that unemployment ticked up from 9.4% to 9.5%. This report follows a similar unemployment report for the 16-nation euro zone, which saw unemployment rise to ten-year highs with a gain from 9.3% in April to 9.5% in May.
The financial media is on fire about how today's report casts doubt on the economic recovery. Really? Should we be surprised that unemployment is rising? The answer is no. Economists have been warning us for months that unemployment would continue to march higher even after the economy begins to recover. It will continue to rise with estimates in the 10% to 11% range by early 2010. What's concerning is that at 9.5% unemployment the unofficial "real" unemployment rate for the U.S. is closer to 16%.
Unemployment in Europe is expected to out pace job losses here in the U.S. Speaking of Europe the European Central Bank (ECB) announced that they would leave interest rates unchanged at 1% this morning. However, ECB President Jean-Claude Trichet suggested that the bank is willing to lower rates if they need to. For comparison the U.S. Federal Reserve is targeting interest rates in the 0.0%-to-0.25% zone. European stocks were widely lower this morning and the sell-off accelerated on the U.S. jobs number. The English FTSE lost 2.4%. The French CAC-40 lost 3.1%. The German DAX plunged 3.8%.
Asian markets were closed before the U.S. data was released so we can probably expect them to decline tomorrow. The Chinese Shanghai index gained 1.7%. The Hong Kong Hang Seng, which was closed yesterday, lost 1% today. The Japanese NIKKEI lost 0.6%. About a week and a half from now China is set to announce their second-quarter GDP numbers on July 16th. Currently the country's economists are expecting a +8% growth rate.
Crude oil futures, which have been acting weak the last few days with a couple of bearish reversals, continue to decline today. Rising unemployment in the U.S. and Europe would suggest less demand for energy and oil. The August oil futures fell about 3% and traded under $67 a barrel. Energy stocks are some of the worst performers today with the OIX oil index down 3.2%. The OSX oil services index is down 3.5% and the XNG natural gas index is off 3.6%.
Currently the S&P 500 index is off 2.3% and trading back under its 50-dma but still holding above the 900 level (barely) at 902. The tech-heavy NASDAQ is down 2.3% and hovering around the 1800 level. The Dow Industrials look ugly with a 2.1% decline and a drop back under its 50 and 200-dma. The small cap Russell 2000 index is down 3.3% and hovering near the 500 level and its rising 50-dma.
Let's take a quick look at charts for the major averages:
Chart of the S&P 500:
Chart of the NASDAQ:
Chart of the Dow Industrials:
Chart of the Russell 2000 index:
Scanning the OptionInvestor.com play list I see that ACL is once again testing support near $115.00. BDX is under the $70.00 level but trying to make a comeback. Traders were pretty quick to buy the dip in CVD, which is encouraging. Unfortunately the bounce in shares of DECK is failing. DECK is now back under the $70.00 level, which should have been support. Weakness in the oil sector has pushed MUR to a 4.4% decline. Shares of MUR could be poised to test support near $50 again. The rest of our call plays are down today due to the market-wide sell-off.
Glancing over the put plays I see that AGU is actually bouncing and trading back above $40.00. We have a trigger to buy puts at $38.75. CLB is down 1.8%. LLL is down 3.5% and very close to our first target at $66.00. Readers may want to go ahead and start taking profits in LLL right now. The bounce in UPS is starting to roll over. This looks like a new entry point for puts. Meanwhile WYNN is down 5.4% and under previous support near $34.00.