Stock Market Ignores Good News

(June 10, 2002)The stock market continued to ignore good economic news last week and drifted lower with the S&P 500 finishing down a negative 1.3% for the week ending 6/7/02. Friday’s unemployment report was a big positive surprise, coming in at 5.8% for the month of May, when economist had been expecting a number closer to 6.1%. Apparently the reaction to the lower employment rate was muted by the fact that the economy created fewer jobs than expected. About 41,000 jobs were created in May versus an expected growth of 65,000 new jobs.

You may wonder, how can the economy create fewer jobs than expected, yet still have unemployment decline? Good question, but no easy answer. To simplify, the unemployment number is calculated through a phone interview of random households. While, the jobs created number is compiled by the government based on business data that nets out new hires against layoff announcements. Obviously, there is room for errors of data and timing in both methods.

Since the data was inconclusive and the stock market was already in a foul mood, the investment community saw the glass as half empty and sold stocks down even further for the week. Certainly some of the corporate earnings news was disappointing (Intel) but, that should be somewhat expected until this recovery in the economy gains more momentum. The economic horizon always slows down for summer as fewer data is released and our nation rotates us all through a vacation cycle. Hopefully, corporate profits won’t take a vacation and we can build on some positive corporate news, while the economy continues to improve.