We're in Bull Market Despite Jobs Data: Strategist
Web Producer, CNBC.com
The outlook for stock markets is "more promising today than it was near the end of last year," and the bull market has a way to go despite the temporary "bump steer" caused by last Friday's disappointing jobs report, a strategist told CNBC.com on Tuesday.
Mike Lenhoff, chief strategist at investment management and financial planning firm Brewin Dolphin wrote in a market note last week before the jobs report was released that the outlook for the U.S recovery was solid and that there were other factors supporting stock markets as well.
"You can't let one month number side-track you," Lenhoff told CNBC.com when asked whether he still believed in the bull market. "When you get a disappointment of that magnitude… it's likely to throw a lot of people off course."
"My own view on this is that that was a bump steer. The ISM survey, both for manufacturing and non-manufacturing gave an indication that the prospects for employment were still strong."
Labor data released on Good Friday, when stock markets were closed, showed that employers added 120,000 jobs in March, the smallest rise since October and much lower than analysts' expectations of 203,000 according to a Reuters poll.
On Monday, U.S. stocks fell with some analysts saying this could be the correction that many had expected after their rapid rise over the past months.
"I think that's what this figure has done, it's a disturbing number so the market's going to say 'right, time for some profit-taking,'" Lenhoff said.
"I do think that we're going to see a decent amount of profit-taking and then the buyers will come in."
Three Factors Support Markets
Stocks fell on Wednesday after minutes from the Federal Reserve meeting from March showed the central bank was not ready for a third round of quantitative easing. However, Lenhoff said that, amid reminders of risks to the outlook, Wall Street has been "defying expectations with a bull market supported by an economy where prospects are looking up."
"In spite of a loss of earnings momentum and poor pre-announcements ahead of the forthcoming corporate results for first quarter 2012, the S&P 500 reached a new-post financial crisis high this week. If that is not positive, what is?" he wrote.
Stock markets are supported by three features, according to Lenhoff.
One of them is the more solid outlook for the recovery in the U.S., with trends for unemployment and bank credit moving in the right direction , another is the "more constructive policy effort" coming from the euro zone and the third is additional stimulus firepower coming from the developing world.
Earlier this week, jitters caused by a poor auction of Spanish bondssparked a selloff in European and U.S. stocks.
"Spain was this week’s reminder of how distant the resolution toward sovereign debt sustainability lies," Lenhoff wrote. "But the message of what needs doing is understood and euro zone leaders are likely to persevere in battling it out against practicalities that require compromise. Just ask [Italian Prime Minister] Mr. Monti, who knows a thing or two about this."
Developing World to the Rescue
Countries in the developing world can do what those in the developed world no longer can because they have exhausted their firepower – namely, lower interest rates, cut taxes and increase government spending, he argued.
"The policy options are wide open and Brazil is a good example of where all three options are being pursued. Interest rates have been cut aggressively and just this week the Finance Minister extended the expansionary fiscal policy announced last year by introducing a stimulus package of tax cuts and government purchases," Lenhoff added.
Stimulus from the developing world added to the efforts by the Fed, the European Central Bank and the Bank of Japan will boost the global economy, he said.
Getting through first quarter earnings results "may not be easy," but earnings momentum "can be expected to pick up later in the day," according to Lenhoff.
"It is then that the transfer of the recovery from the corporate sector to the personal sector by way of more job creation will likely be boosting confidence and spending. All that should come through to more top line growth and for Wall Street that should mean onward and upward for the bull market," he concluded.