Thursday, August 25, 2011
Stocks may find it hard to sustain the gains of the last few days given the soft weekly Jobless Claims numbers this morning.
A major contributor to this week’s gains has been the growing expectation that Bernanke will come out with something helpful in his Jackson Hole speech on Friday. And in that line of thinking, a weak labor market report increases the odds of something positive from the Fed Chief. I am very skeptical of this view. In fact, given these expectations, the market will likely get a negative surprise from Bernanke’s Friday speech.
Weekly Jobless Claims increased by a greater than expected 5 thousand for the week to 417 thousand. The prior-week’s tally was revised upwards to 412 thousand from 408 thousand. The relatively more stable 4-week average increased by 4 thousand last week to 407.5 thousand.
One unsual item in this week’s claims number is the impact from Verizon Communications (VZ) workers strike. Adjusting for that impact, the claims number would roughly be inline with expectations. But irrespective of the Verizon impact, the claims number has remained above the 400 thousand level over the last four months except for the one-week drop below that level two week ago.
The elevated claims level is no doubt a matter of concern. But on the positive side, we have not seen any material deterioration in this series either. Some modest slippage in the last couple of weeks notwithstanding, the overall trend on the claims front has been positive. Let’s not forget that weekly claims were as high as 478 thousand in April. They key test now will be the August non-farm payroll report coming out next week. If we get numbers that are along the lines of July, then it will be a good enough proof recession-defying momentum in the economy.
The most important corporate news is the leadership change at Apple (AAPL), where the ailing CEO Steve Jobs is being replaced by COO Tim Cook. It will be interesting to see how Apple shares behave today and in the coming days as the ‘Steve Jobs Premium’ unwinds.
On the earnings front, we got an EPS beat from Big Lots (BIG) on modestly better than expected revenue. But the close-out retailer had weaker than expected same-store sales comps in the quarter. Hormel Foods (HRL), the maker of Jennie-O Turkey products and other brands such as Spam, came short of earnings expectations as high input costs weighed on margins.
Sheraz Mian
Director of Research
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