The Bureau of Labor Statistics releases the jobs report in the morning of the first Friday of every month. Lately, that report seems to be having an outsized influence on the markets, sending them sharply up or down.
How should retail investors view the jobs report in the context of making investment decisions? Earlier in June, I asked that question of Eddy Elfenbein, who writes about stocks at Crossing Wall Street and was named by CNNMoney as "the best buy-and-hold blogger" on the Web.
Watch our conversation here (run time: 3:28), or read the transcript below:
Brian Richards: You mentioned the jobs report and how important that has become, even in the last six months it seems like it's now the thing everybody's looking at. How should retail investors look at the jobs report? If somebody is a long‑term-oriented retail investor, should they pay attention to that figure?
Eddy Elfenbein: Not at all. Not at all. [laughs] There are several problems with the jobs report. And just because Wall Street pays attention doesn't mean individuals should. ... In fact it will make your life a lot better. [laughs] Again, you don't have to know this. And even as we're speaking today, on Wednesday, the markets rallied today and we've already made back much of what we lost from the upsetting jobs report of just a few days ago.
First is, I don't think people realize that the jobs report is done by the government. So that means it's not exactly perfect. The plus or minus on the monthly jobs report is huge. It's gigantic. We wouldn't accept this from any other company if they said, "Well, we expect to make a dollar a share, plus or minus $3" and that's almost what it's like. And plus on top of that, they're constantly revising their previous reports. And that happened this time -- they revised previous reports, and then they revised the revisions. And the revisions to the revisions later get revised [laughs] and then the whole thing...
Richards: So in 10 years we'll know the number.
Elfenbein: It's literally longer than that we've had revisions. We've had up to a quarter of a century, they'll revise GDP reports. So, you know, nothing is surprising as the past is what they say.
So as far as paying attention to the jobs report, overall, in a macro sense that's important for how the market's going to go. As far as day-to-day trading, to investors who are serious about planning their retirement and building a long-term portfolio, that's just noise. Just ignore it.
I'll give you an example, and this is a fact that all individual investors should understand when they invest in the market: Each day the S&P 500, its intrinsic value rises by about 1/30th of 1% -- a tiny, tiny amount. Just sort of 3 basis points is what it's rising. But the average daily swing on the market is about ... I mean it's come down recently, but historically it's been about 1%.
So think about that: Each day on average you're swinging 30 times what the market is actually worth, what the actual intrinsic value is. So the stock market is extremely chaotic in the short term. There is good news about that -- that stocks can be mispriced, and for patient investors you can get good deals for yourself and wait till the other guy panics. But the downside is you just have to ride out these storms and not get caught up in the daily panics of Wall Street.
For more from my interview with Eddy Elfenbein, click here or here, or check out his site, Crossing Wall Street.