New Jobs Appear To Be In Short Supply; Sentiment Moving Towards Recession/Bear Market

“… the job market is losing momentum.  That is critically important because income growth tied to the creation of new jobs has been a key source of support for the household sector….”

– David Greenlaw, Morgan Stanley

The BLS’s December Jobs Report came in notably weak with an addition of just 18,000 jobs.  Also, the unemployment rate increased to 5.0% from 4.7% (December Jobs Report).

Obviously I have my own framework for understaning what’s happening but the deluge of bad news seems to be changing the outlook of many market participants:

December’s bleak jobs report represents the sirens call that this business cycle is just about over.  We’re about to tilt over to the other side of the economic curve and begin the downswing

– Bernarnd Baumohl, Economic Outlook Group

After this report, I’d have to say the chances of recession are about 50-50.

– David Wyss (subscription required), Economist, Standard & Poors

As more and more people shift over to this view, they will sell stocks and position their investments in accordance with their outlook, continuing to create downward pressure on stocks.  It will take time but more and more people appear to be moving this way.  Assuming, as I do, that this is because that is the correct interpretation of reality, such a movement will continue as people reckon with the emerging reality.

One comment on sentiment as a contrary indicator.  You’ll hear a lot of bulls say that this is a contrary indicator and suggests selling has exhausted itself.  But I just don’t think we are anywhere close to that point.  With markets still in sight of all time records, and only 3 months from them, most investors are still clinging to the view that the economy is strong and stocks will recover.  It will take time to shake them all out and until then the trend will be down.