Positive Jobless Claims Move Equities Higher. Will the Trend Last?
One thing is on most people's mind: how is the economy going to recover. According to conventional wisdom, the job market is one of the main indicators of economic strength. From newly minted college graduates to industry veterans, many Americans are struggling to find jobs. It's no secret that unemployment is one of the few economic numbers that Americans are looking out for.
Today at 8:30am, Initial Jobless Claims came out and let investors know how the job market and the overall economy is doing. The number determines how companies such as Microsoft (NASDAQ: MSFT), Exxon-Mobil (NYSE: XOM), and Macy's (NYSE: M) have helped the economy by hiring people. These companies essentially reflect how the average US consumer is able to find jobs.
Positive jobless claim numbers indicate that consumers are able to put themselves out there and find jobs, even in the face of uncertain economic times. This indicates to traders that things may be better, after all, and tends to move the equity markets higher.
This morning, traders found out that jobless claims were 352K, lower than the estimate of 370K. Since the number was lower than the estimate, equity market futures moved higher, and and ultimately translated into positive news for overall US equities. The move higher was also buttressed by positive earnings announcements by Morgan Stanley (NYSE: MS) and Bank of America (NYSE: BAC).
Long-term investors should also keep in mind the jobless claims from the prior period, which was 402K. Initial claims come in every week, so long-term investors should keep track weekly snapshots of the job market. Any aberrations or sudden drops could mean that consumers are unable to find fortune with the economy and that companies are unwilling to re-invest in the public.
Investors should also keep in mind that the holiday season may artificially increase claims. Many companies hire temp workers to cope with abnormally high retail volume. However, if investors see a sudden increase in jobless claims, the economy may not be in the best position.
Consumers have a few options when it comes to understanding the US economy. The initial jobless claims number is one indicator that could help investors gauge where the economy is heading into the future. Investors should also keep up with the major news on a real-time basis to stay on top of major developments that move markets.
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Traders who believe that Initial Jobless Claims will be positive might want to consider the following trades:
- Long US Equity futures by purchasing shares or call options. If you go with the options strategy, you could purchase a straddle just to reduce risk associated with the bet.
- Short the US Dollar Index, which typically moves inversely to equities. You could also short it against another currency like the Euro.
- Purchase option straddles of an ETF that tracks US equities like the S&P 500 SPDR (NYSE: SPY).
Traders who believe that Initial Claims will not be positive may consider the following positions:
- Short US equity futures. The futures market typically relies on technical analysis for entry and exit points, so identifying the next support level may be useful.
- Long the Dollar Index, which is likely to move up if equities go down.
- Short the Euro, which could go down as investors fear that Europe will be worse-off than the United States. Negative jobless claims may indicate to investors that the European job market could be even worse than the United States' sales.
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