BLS Job Report Numbers are In

The Bureau of Labor Statistics (BLS) released their estimate of new job growth for the month of July, coming in at a strong 1.8 million new job creations.  In addition, the Unemployment Rate fell from 11.1% to 10.2%.  However, a deeper look into the report shows that there was a misclassification error that showed some as absent from work for other reasons vs unemployed as they should have been considered.  Without this error, the unemployment rate would have been 1% higher, or 11.2%.  Further, with many people not actively looking for work due to COVID or the reality that they are have been receiving the additional $600 per week federal Cares Act benefit, the real number is much higher than what was reported.

With the US stock market just a short distance from setting new all-time high records, many economists are pointing out that the current economic environment does not support a rational explanation for the strength in the stock market.  In fact, one of Warren Buffets preferred method of evaluating the stock market is to look at the spread between GDP and the stock market.  Given the weak state of GDP and stocks just below all-time high levels, the spread between the two has never in history been greater than it is now.  This would predict a sharp decline in the stock market to get the two within a reasonable spread.  However, with the Federal Reserve buying mass quantities of 10-Year Treasury Notes and mortgage backed securities, interest rates have been driven to a low point where investor money no longer sees the benefit of buying fixed return assets.  Therefore, more money has been pushed into the stock market, which has helped drive stock prices significantly higher.

We will maintain our locking bias.