Stock prices rallied again yesterday, after falling during each of the previous two days. But I don't expect the rally to continue.
Yesterday's rally was attributed largely to a report from ADP, which showed that non-government employment (excluding farming payrolls) rose by 189,000 during November, compared to 69,000 on average during the past three months.
Although business economists are estimating that total non-farm payrolls, which include government jobs, grew by 70,000 during November, today's ADP report suggests that total job creation may have greatly exceeded this number during November.
In light of the fact that Federal Reserve Chairman Ben Bernanke said last week that the Fed plans to give considerable emphasis to this Friday's jobs report from the Department of Labor, my research suggests that there's now a good chance that the Fed won't reduce the Fed funds rate by 50 basis points — a move expected by futures traders — when it meets on Dec. 11.
So, although stock prices rose sharply yesterday, you shouldn't expect the rally to continue.
Oil prices are on the rise again, after OPEC decided to not increase supplies, and growth in the retail sector is continuing to show signs of slowing.
For example, the International Council of Shopping Centers announced earlier this week that consumers scaled back purchases in the last week of November, after they took to the malls in droves on Thanksgiving in response to huge discounts offered by the nation's retail chain stores.
This latest report on the retail sector follows Goldman Sachs' reduced profit estimates last week on 12 retailers for the coming year.
Meanwhile, the Institute of Supply Management (ISM) announced yesterday that its index of economic activity in the non-manufacturing sector fell during November to the lowest level since March.
Yet, the ISM's survey of non-manufacturing businesses revealed that those businesses expect their costs to continue rising in the months ahead. In fact, the ISM prices paid index rose to the highest level during November since September 2005.
Consumer confidence in the economy is also continuing to deteriorate, according to a survey done by Bloomberg and the Los Angeles Times, with a majority of Americans saying the economy is doing poorly.
The gloom was pervasive. Poll respondents, by a margin of 71 percent to 23 percent, said that they expect a recession within a year.
I'm still not convinced that the economy will fall into a recession. However, my models continue to indicate that economic growth in the U.S, as well as in numerous other regions of the world, will slow considerably next year.
So, once again I urge you to not get caught up into the latest hoopla. Rather, I suggest you invest in defensive sectors of the market and consider investing in ETFs that sell short the major stock market indexes.
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