Week 27 Performance.....Jobs Report Disappoints Again

The equity market rally came to a screeching halt Friday when yet another disappointing jobs report was released.  All major equity market indices were in rally mode coming off of the July 4th holiday but the DJIA and S&P 500 both cratered under the pressure of the low job creation number.  The NASDAQ was able to get back to break even while the Russell 2000 finished with a strong 1.1% gain on the week.  The DWCM Fund manage a resilient gain of 0.8% for the week


The 80k net jobs created missed expectations of 90k.  The net revisions for April and May were down 1,000.  The unemployment rate remained unchanged at 8.2%

• Relative strength is in the goods-producing sector. Employment in this sector rebounded 13,000 after a 21,000 decline in May. Manufacturing increased 11,000 after a 9,000 rise in May. Construction posted a modest 2,000 gain after dropping 35,000 the month before. Mining edged up 1,000, following a 3,000 advance in May.
• The private service-providing industry is where the June numbers were most sluggish. This sector showed only a 71,000 gain in June after advancing 126,000 the prior month.
• The public sector continued to shrink with a 4,000 dip in government employment-much smaller than the May drop of 28,000. 
• Average hourly earnings improved to a 0.3 percent boost from 0.2 percent in May. Analysts called for a 0.2 percent gain. The average workweek edged up to 34.5 hours from 34.4 in May. The market median forecast was for 34.4 hours. 

This latest data point is just another in a string of points that suggest an economy which is barely sustaining itself.  Although the weekly initial claims and Challenger job cut report both released Thursday indicate that firms aren't cutting back they are certainly not hiring.


Labor productivity has been a major thesis of ours at DWCM since we starting writing over a year ago [see Making It in America].  With sluggish demand employers see no need to higher and with continued uncertainty surrounding increased regulation such as Obama Care companies are just not hiring.


It's tale of two America's with those that do have jobs and those that do not.  Those who have jobs continue to spend albeit at at moderate pace while those without jobs continue to struggle to meet financial obligations.  We believe that we have moved a little beyond the 1% discussion to focus on how the 99% are doing.  We would suggest that half of the 99% are making it while the other half are not depending upon your definition of making it.[see Forget the mortgage, consumers pay car loan first]


With growth stalled do not expect the unemployment or housing picture to change much.  Without jobs demand shrinks.  With uncertainty consumers pull back.  With student coming out of college with an average of $25k in debt without any good job prospects the housing market can't stage a come back even at historically low interest rates.


As we noted in last week's performance report we initiated a short strategy against the home builders which include the following names:

• M/I HOMES, PULTEGROUP, RYLAND GROUP, LENNAR, DR HORTON, KB HOME

Although we finished in the red during the first week of executing this strategy we believe that it will pay dividends throughout the remainder of this year and into next while adding some additional protection to our overall Fund.


Our two tech names Marvel and Riverbed continue to be punished.  We will decided this week weather to exit the positions all together or add to them.  Seasonally we are entering the time of the year where tech names usually start to rebound.  It was our own mistake to enter these names to early in the year although we liked the company.  Lessons learned for going forward.

The Week Ahead
We won't likely have the economic news driving the markets as we did last week.  However that doesn't mean that news out of Europe can't be a disruptor.  We also have the beginning of earnings season here in the US with Aloca releasing results after the closing bell on Monday evening.  Look for the consumer sentiment report to affect trading on Friday.

• Mon -  Consumer Credit
• Tue -  NFIB Small Business Optimism Index
• Wed -  FOMC Minutes
• Thu -  Jobless Claims,  Bloomberg Consumer Comfort Index
• Fri -  Producer Price Index,  Consumer Sentiment

Not knowing where readers live I can no doubt believe that most of you have been scorched by this extreme heatwave that has engulfed the US so far this summer.  I hope that clients and readers are finding some form of relief any way they can.


I not this this because throughout the Midwest there exists extreme drought conditions.  This could have a very damaging impact in several different arenas this fall.

• Lower crop yields will likely lead to higher prices which will likely get pushed onto consumers.
• Higher prices will no doubt affect corporate earnings as well.
• A decrease in farmer income will likely lead to lower spending on equipment.  This is a thesis that I am following close which could affect names like John Deere and Agrium    

DreamWorks Capital Management

DWCM has scheduled our next finance lecture & seminar for Tuesday September 18th at the The Community House located in Birmingham, MI.  This quarters topic will be Balancing Your Changing Investment Needs: Emergency Fund, Investments, Retirement, Education, and Philanthropy.  This is going to be a very broad topic in which we will cover significant points regarding creating, developing, and executing on your wealth management plan.  We should have a very interactive group so be sure to sign up by emailing me directly at pfenner@dwcmllc.com or by contacting The Community House at 248-644-5832