There are two key ramifications of today’s data from the BLS as well as ancillary manufacturing data from the U.S. Census Bureau. First, the idea that the dollar can only move higher in light of China uncertainty and euro-zone complications is flawed. Expectations for the timing and the extent of rate hikes by the Fed continue to diminish with every lackluster economic presentation. Since the dollar had already priced in the end of quantitative easing in the U.S. and the eventual beginning of eurozone quantitative easing, I’m more inclined to expect the dollar via PowerShares Dollar Bullish (UUP) to end 2015 very near where it is today.
Next, prominent sector investments like industrials and transports will continue to underperform. Simply stated, factory orders have fallen in nine out of the last 10 months; the seasonally adjusted year-over-year decline in factory orders is 6.3%. Strong dollar excuses notwithstanding, this type of data is entirely recessionary. In fact, it’d be difficult to find a period where the weakness in demand for U.S. manufactured goods was this low and it wasn’t associated with economic recession.
As I have discussed on many prior occasions, one does not necessarily need to pare back core positions like iShares S&P 100 (OEF). Not unless one is employing a disciplined approach to risk reduction. Still, if you have been holding onto an allocation to SPDR Select Industrials (XLI) or iShares DJ Transports (IYT), consider taking profits. Technical analysis of the sectors suggest further erosion of price, and neither the BLS employment data nor the U.S. Census Bureau manufacturing data indicate a quick turnaround.
