Well, 2012 has certainly fooled investors. The Dow Jones Industrials Average
|Dow Jones Industrial Average||(253.4)||(2.0%)||12,140|
Why the long face?
Today's dive comes down to one word: unemployment. The numbers are in from the jobs report and they ain't pretty (at least not as pretty as we'd like). Payrolls expanded by 69,000 jobs last month, but economists had their fingers crossed for a 150,000 gain instead. Today's numbers indicate the slowest pace for jobs growth so far this year, and were accompanied with a rise in the unemployment rate to 8.2%.
Wait a second: If we're adding jobs, how'd the rate go back up? The answer lies in more people returning to the job force to look for work. Remember when the unemployment rate fell to 8.1% recently and everyone was thrilled? The unfortunate reality of that figure was that the unemployment rate partially declined because people simply stopped looking for work. That's like winning a race because everyone else got disqualified; you'll walk home with the medal, technically.
Given the current trajectory of unemployment from the peak rate of 10% in 2009 to today, it would take over four and a half years to return to the "normal" unemployment rate of 5%, and probably longer if you consider that some of the rate declines we've seen have been technicalities.
The resulting tremors reverberating through the market today are being felt in some sectors more than others, but the worst-performing sector is consumer cyclical stocks. The sector is down 2.9% on the whole, with some companies faring even worse.
It's easy to expect the same trend to affect automakers. As what is typically the second most expensive purchase in someone's life, it's logical to assume consumers will justify putting off a new car purchase just a little longer. However, May auto sales actually surged 11%, the highest monthly gain since 2009. Ford's U.S. sales rose 13%. The reason is that as consumers put off new car purchases during the recession, the ranks of old clunkers swelled to capacity. With the average age of automobiles owned at an all-time high, some people just simply have to buy a new car at some point, regardless of what the unemployment rate looks like. Today's drop could be a buying opportunity.
Lastly, the VIX
How to play it
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