I keep telling investors to ignore the monthly frenzy surrounding the monthly jobs report (see this, this and this). It isn’t significant for their holdings, at least not in any actionable way. By the time we know for sure that the economy has accelerated or slowed, stocks will have long since reflected this in earnings and then prices. It is only partially a joke to note that economists are often the last to know.
Why should investors ignore the nonfarm payrolls numbers? Consider what must be done in order to either profit or avoid a loss based on changes in the employment situation. Investors would have to:
• Predict what the nonfarm payrolls will be;
• Guess if this will be above or below consensus (which changes often);
• Conjecture how much of this is already reflected in stock prices;
• Arrange your portfolio in light of all of the above.
To win this game, you must get each of those four steps right. And, each one is dependent upon your getting the prior step correct, then pyramiding that prior lucky guess with another. Someone usually gets this correct, but I would suggest this is a function of random luck, not skill. That isn’t an attractive basis for putting risk capital to work.
Rather than play a no-win game, let me suggest something else:
Joe Keenan said we would lose jobs today. So what if you listened to him and did the opposite?
Hi Barry, thank you for the informative post. Two questions; 1) to what extent do you think the US equity markets have priced in the good news. As you have pointed out above, NFP figures have been strong for many months now, as the US equity markets have rallied during this period. I’m asking this question with the latest quarterly of GMO on the back of my mind where they say they are getting rid of US stocks and buying some of the the ‘ugly’ non-US markets, because they think they are ‘cheaper’. What they do and how they see the markets is their own view and you might disagree but I appreciate if you could comment on that. 2) do you think the trend of the NFP figures are pushing the FED for a mid year FED funds hike in 2015? short USD swap rates seem to suggest a hike around June-July of this year. Sorry to keep the question so long. Have a nice Sunday, it is already evening here in Europe.