The U.S. and Canadian May jobs report came out last Friday and unfortunately the numbers were not as good as the previous month.

In April, we saw significant growth on both sides of the border, but job creation (in the private sector) was significantly less in May. The Canadian numbers were not frowned upon as much as the U.S. numbers were, even though both showed positive job growth. Are the poor job growth numbers a sign of more bad things to come?

You cannot ignore this most recent jobs report in the United States. It clearly proves to me that economic recovery in the U.S. — although improving — will be a slow process. However, the positive angle is that the United States has had positive jobs growth for the last 4 months in a row.

Did anyone think that the jobs growth would go up in a straight line? Isn’t it more important that we see jobs growth, period? Perhaps the poorer jobs number could be a seasonal factor? You can't conclude a whole lot from one month of numbers. I would agree with the negative thinkers if poor figures continued over the course of a few months, but is it possible analyst expectations are just too high at this time?

The North American stock markets seem to be range bound over the last few weeks. Positive news coming out of Canada and the majority of publicly traded companies in the U.S. is offset by macro events around the world: European issues; Korean issues; the oil spill; and tensions in the Middle East have dominated the headlines and unnerved investors about these markets. On any given day, the headline the media and investors focus on will dictate the direction of the financial markets.

So what would be a good strategy to employ during this time? With interest rates on GICs and government and good quality bonds being so low, I don’t think it is possible for an investor to bail out of the markets altogether while we wait for things to sort themselves out.

The main reason is that you would be trying to time this market — and that strategy rarely works. Investors must stay in this market and concentrate on getting paid to wait for the growth to happen. Owning both growth- and income-type investments is the best course of action, as there are many dividend-paying companies currently paying higher rates than GICs or bonds, and still have significant upside for growth.

If you are in mutual funds, perhaps you start to look at slightly overweighting your portfolio to dividend and balanced funds (depending on your risk level, time horizon and objectives). Investors can't afford to leave this market, but I do believe if the markets continue their malaise for an extended period of time, investors need to earn something while they wait.

 

 

Allan Small (asmall@dundeesecurities.com) is an Investment Advisor and not an analyst with Dundee Securities Corporation. The views and recommendations expressed are those of Allan alone and are not approved by or the views of Dundee Securities Corporation.