Stocks fade after employment number boost

Stocks opened higher this morning after the October jobs report showed 171,000 new jobs were added for the month.  This was better than economists had expected, and was also better than the 158,000 new jobs reported by ADP yesterday.  The unemployment rate ticked up from 7.8% to 7.9%, which was in-line with expectations.

On balance, this is a positive report, and should help Obama at the polls Tuesday (a little), or at least it won’t hurt him.  I strongly suspect some significant revisions to these last two reports after the election, but we shall see.  Beyond the possible manipulation issues, the past two month’s reports are not stellar.  They are mildly positive, but do not reflect the 500,000+ jobs per month pace that is needed to really see significant employment improvement and economic expansion.  Companies are not going to want to hire when they are facing the possibility of substantial tax increases after the Bush-era tax cuts and spending cuts at the end of this year.  If Obama wins, most companies will want to postpone any hiring until after Congress ramps back up next year, to see if there will be any extension of the tax cuts, or a delay in spending cuts.

The CBO (Congressional Budget Office) has already stated that the economy will fall back into recession if the Bush tax cuts expire and the spending cuts are not postponed.  My guess is that, regardless of who wins, most if not all of the tax cut expirations and spending cuts will be postponed, but the uncertainty surrounding this issue will likely pressure the economy, hiring, and the financial markets.

Stocks have now turned negative, which is what I expected to see after yesterday’s 1%+ pop.  It is Friday, after all, and we are still in the midst of a correction.

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