June jobs reports for the U.S. and Canada were released last Friday with some surprising results. Beforehand, the consensus for U.S. growth was in the area of 125,000 jobs. The actual number was a pitiful 18,000 jobs created. In comparison, Canada, a country with one tenth the population of the U.S., created 28,000 jobs for the month.
This was the second consecutive month for disappointing job numbers in the U.S. Is this a sign that the growth many, including myself, are expecting in the second half of the year will be significantly less?
Even though the U.S. economy can't seem to create jobs, Canada's economy has been more successful and has had its unemployment rate fall consistently over the past year. Thus with Canada’s unemployment numbers looking good, why does our market -- and our dollar -- fall with the U.S. markets?
I find it quite interesting that the positive Canadian unemployment numbers really don’t have much of an effect on the loonie and the Toronto Stock Exchange. In my opinion, the behaviour of the market on Friday clearly shows that the U.S. still sets the tone for our markets. I believe that our market looks at the U.S. as our number one trading partner and thus if they are experiencing slow or no growth, eventually that will affect companies here in Canada.
In fact, the loonie moves down on a day that the U.S. reports poor employment numbers even though our numbers look good by comparison. Weak U.S. employment is bad for the price of oil and our currency is looked upon by many as a “petro” currency and thus when oil falls significantly, so does our dollar. Therefore both our stock market and our currency had a bad Friday.
Now that the U.S. unemployment data has been released, the next huge catalyst many believe will move the markets is the earning season, which Alcoa (Aluminium Company) kicks off this Monday when they report second quarter results after the market closes. By the end of the week, we will see how companies like J.P. Morgan, Google and Citigroup fared in the second quarter. With employment data being so poor in the U.S., in my opinion this puts even more emphasis on the upcoming earnings season if the bulls are to be proven right and this market is headed higher. The good news is, very few companies pre-announced that they would not meet their earnings expectations or guidance for the second quarter. Thus, this may mean that most will meet or exceed the earnings expectations the analyst community has for them. If this is correct, this earnings season should be good and the market should rally.
I believe that the reports from the past two months do not make a trend. If we are still experiencing weak data by September, then I think investors should take notice. I didn’t think the employment data coming out of the U.S. was going to be too strong but I didn’t expect only 18,000 jobs created either. Therefore, I believe investors should continue to stay invested as I think the third and fourth quarters will still be positive.
I remain hopeful for a good earnings season even though the macro numbers for the second quarter coming out of the U.S., for the most part, were not that great. Individual companies in many sectors are performing better than the broader economy in the U.S., especially companies that do business on a global scale. If investors are able to find these multinational companies, or companies that are paying a good dividend, this as I have said many times, is a recipe for success.
If you have any questions regarding the above article or are looking for an investment advisor to help you with your portfolio, please visit my website at www.investmentadvisorgta.com. I will be glad to speak with you.
Allan Small is an Investment Advisor with Dundee Securities Corporation, a DundeeWealth Inc. Company. This is not an official publication of Dundee Securities and the author is not a Dundee Securities analyst. The views expressed are those of the author alone, and are not necessarily those of Dundee Securities or Metro Canada.