Commentary: One year into housing recovery, jobs showing signs of life
By: Lou Barnes Contributor
Long Treasurys broke upward, out of the trading range of the last eight weeks. Not by much, but out, the 10-year T-note above 2.8 percent for the first time in more than two years — 2.86 percent at this moment. Mortgages are stickier, the rise negligible (investors have lost fear of another refi wave), but the march toward 5 percent is underway. Two patterns are helpful, one 24 hours old, the other a 60-year vintage. Before discussing those, dismiss a false lead: The 17-nation eurozone enjoyed positive gross domestic product (GDP) in the second quarter, ballyhooed in the U.S. press as an “end to recession.” A positive quarter is the technical definition of a recession’s end, but not even the Europeans believe this is anything more than a passing moment of stabilization. Yesterday’s trading was instructive.
News that should have helped long-term rates did not: Egypt’s descent into civil war; 200 points off the Dow; and zero-gain industrial production in July. News that overwhelmed all else and pushed up rates: New claims for unemployment insurance last week fell to a six-year low: 320,000. Thursdays’ market calculus is now persistent: Jobs override all. If employment is strengthening, the Federal Reserve will taper quantitative easing to zero within six months. Thus stocks traded down on good economic news. I have never found a direct conveyor of QE cash to stocks, except running through the vacant minds of stock boosters. Whether real or imaginary, the mind prevails, but it does not say much for the investment-value underpinnings of stocks that good economic news is bad news. The trading-desk shorthand for unemployment insurance applications is “claims.” Every U.S. recession since the big war has ended in the same pattern: Credit-sensitive housing and autos rebound as soon as the Fed cuts rates. The job market is the last to recover, often lagging housing by two years.