Blog : Jobs Schizophrenia

by Ed Zwirn on July 5th, 2013

The latest jobs numbers are producing a justifiably schizophrenic reaction on Wall Street, with investors in everything from penny stocks to blue chips trying to gage the impact of the numbers on U.S. Federal Reserve Bank action.

On the Fed Hawk side of the argument is a relatively strong pickup in payroll numbers, with 195,000 jobs being added in June, much higher than the 166,000 consensus. In addition, a revised take on May showed an increase of 195,000, up from the previously reported 175,000.

On the other hand, the bulk of this job creation is coming in the form of lower-paying and insecure jobs that can hardly bring more investment money into penny stocks. With the summer here, it's not surprising that 112,000 of these new jobs were for bartenders, waiters and waitresses and retail staff.

Also arguing for a more bearish jobs outlook is the fact that the unemployment rate has held steady at 7.6% throughout May and June, after bottoming out in April at 7.5%.

The consensus among analysts out there seems to be that these numbers could mean that a tapering could begin as soon as September of the Fed's $85 billion monthly bond buying program, which would not finish tapering off until June 2014.

The market as a whole appears willing to live with this forecast. As of this penny stock blog writing on Friday afternoon, the Dow Jones Industrial Average is up more than 105 points (0.7%) in the wake of the jobs report. The NASDAQ and S&P 500 are also registering their approval, while the penny stock Russell 2000 Index is outpacing with a 1.1% gain.

Penny stock followers should be aware that the market has probably priced this one in correctly. The advance in job creation, while "good" news, if anything brings us nowhere near the pace that would be expected to signal solid job growth to the Fed. The jobs numbers for June would have had to have been 100,000 higher for that signal to sound.

As people in the U.S. try to reenter, or reposition themselves on, a still sluggish jobs market, unemployment rate numbers ought to remain stubbornly high. Many of those bartenders and waitresses are likely to return to job seeker status in a few months, and it remains to be seen what waits for them.

At any rate, the numbers seem to indicate continued support for penny stocks courtesy of the Federal Reserve until the middle of next year. The market for penny stocks should be supported by both easy money and low interest rates at least until then.