The S&P 500 suffered its second down week on lingering concerns over the disappointing March nonfarm payrolls report. The weak employment data has some wondering if the economy is heading for another soft patch.
Investors have been reminded of how fragile the U.S. economy and a domestic recovery really are.
“While the labor market is improving, it’s improving from a very low base at an agonizingly slow pace. In addition, there is some evidence that the labor market has structural problems that may prove to be a drag on growth for some time,” Russ Koesterich, CFA, wrote on the iShares blog. [Stock ETFs Knocked by Weak Jobs Data]
Initial claims for state unemployment benefits increased 13,000 to a seasonally adjusted 380,000, the Labor Department said. The prior week’s figure was revised up to 367,000 from the previously reported 357,000. Economists polled by Reuters had forecast claims falling to 355,000 last week, reports MSNBC news services.
Various fundamentals within the U.S. economy are anchoring a real recovery from occurring at a decent pace. Labor force participation in the United States is now down to 63.8%, close to a 30-year low. Meanwhile, the recession seems to have exacerbated a longer-term trend of stagnating real-wage growth, meaning those who remain in the labor force can’t get a raise, reports Koesterich. [New Options for S&P 500 ETFs]
Investors are closely watching the S&P 500, and broad market ETFs such as the SPDR S&P 500 (NYSEArca: SPY) can be good indicators of the direction of market sentiment. The market bounce on Wednesday may be a glimpse of a new phase of market volatility. [S&P Makes Bullish Case for Equity ETFs]
“The first phase of a pullback is when investors who have been waiting for some technical trigger to start taking money off the table finally get one. This entails a shift in stance from “buying on dips” during an uptrend to “selling on declines’ when that uptrend breaks,” Tomi Kilgore of Dow Jones wrote on MarketWatch.
The U.S. economic growth rate is anticipated at around 2% for 2012, which could be on-target for the moment. As the labor market continues to recover at a snail’s pace, any recovery will be soft, and fragile at best.
Looking forward, interest rates are likely to stay low, indicating Treasury yields will also stay modest. Also, be aware of market volatility and have a strategy in place for an uncertain market.
Tisha Guerrero contributed to this article.