Private payrolls rose by a net 212,000 in December as the overall jobless rate fell to 8.5%, the lowest in nearly three years, the Labor Department reports. Still, the pace of job creation last month is a bit of a letdown after yesterday’s stellar rise via ADP’s estimate. But let’s not quibble too much. Today’s report is still quite respectable in the current climate. Indeed, a gain of 212,000 jobs is a decent showing after November’s tepid 120,000 gain. If nothing else, today’s number du jour puts more pressure on the folks who argue there’s a recession in the offing.
While We’re Waiting For Today’s Jobs Report Update…
The Labor Department is scheduled to release its December payrolls report in a few hours and expectations are high that we’ll see a strong number. Yesterday’s potent update from ADP on jobs creation in the private sector last month certainly strengthened the outlook. The consensus forecast for private jobs creation for today’s release: +170,000, according to Briefing.com. Meanwhile, running a simple linear regression model on the historical data set of ADP numbers vs. the Labor Department’s private payrolls since 2000 implies that today’s update will post a rise of 249,000. Statistical models should be taken with a grain of salt, of course, but there you have it. As for the actual figure, the answer is….
Cause & Consequence?
Princeton professor Burton Malkiel predicts that “U.S. stocks should produce returns of about 7%, five points higher than the yield on safe bonds” for the long-run future. Writing in today’s Wall Street Journal, the author of the best selling A Random Walk Down Wall Street
ADP: Job Creation Surged In December
Job creation accelerated sharply last month, according to the ADP Employment Report. U.S. nonfarm private employment rose a seasonally adjusted 325,000 in December–up dramatically from November’s 204,000 net gain. December’s advance is the strongest monthly gain in the history of this series, which dates to 2000. ADP’s estimate for job growth is coupled with news that initial jobless claims fell a healthy 15,000 last week to a seasonally adjusted 372,000, or the lowest level since May 2008. It’s starting to look like there’s a tailwind in the labor market. The recent drop in jobless claims has been anticipating as much and the forecast appears to be turning into reality.
Research Review | 1.5.2012 | The Role Of Risk In Portfolio Design
Financial Advice and Individual Investor Portfolio Performance
Marc Kramer (University of Groningen) | December 2011
This paper investigates whether financial advisers add value to individual investors’ portfolio decisions by comparing portfolios of advised and self-directed (execution-only) Dutch individual investors. The results indicate significant differences in characteristics and portfolios between these investor groups, but no evidence of differences in risk-adjusted performance. The findings indicate that portfolios of advised investors are better diversified and carry significantly less idiosyncratic risk. In addition, evidence from an analysis of investors who switch to advice taking indicates that these findings (at least in part) reflect the effect of advisory intervention.
The January Effect & The Year Ahead
The so-called January effect for the stock market (S&P 500) looks quite weak when measured on a monthly basis, and it doesn’t offer much more encouragement as a signal for the 1-year-ahead return horizon either.
January Effect Update (And Mea Culpa)
In an earlier post today, I reviewed the thin evidence for the January effect as defined as a month that’s expected to shine with above-average returns. Debunking this idea still looks good based on the past 10 or 20 years, but it turns out that the numbers are even worse than I initially reported. In the previous post I mistakenly reported the sum of monthly returns for each monthly period—my apologies to readers. After correcting the error by computing the standard average of monthly returns (see the new chart below), I find that the January effect is even more elusive.
Looking For The January Effect
Once upon a time investors believed in the January effect. The story is that there’s gold in them ‘thar hills for equity returns during the first month of the year. The idea that January dispenses richer results than the other months dates to economist Sidney Wachtel’s 1942 study on seasonality effects in the market. It’s been a winning idea ever since, judging by all the attention it receives. As an investment concept, however, it looks distinctly unimpressive, or so recent history suggests.
An Encouraging Start For 2012 Economic Releases
The first major economic release of the December economic profile suggests that momentum continues to bubble. The ISM’s factory index rose 1.2 percentage points to 53.9 last month, the highest since April and an acceleration from the pace of November’s gain. If the first reading on the windup to 2011 is any indication, the statistical case is a bit stronger today for expecting the economy to muddle forward, perhaps at a slightly faster clip, in the months ahead.
Major Asset Classes | Dec 31, 2011 | Performance Update
It was a tough year in 2011 for minting risk premiums if you held a broadly diversified portfolio. Bonds and REITs were the big winners among the major asset classes last year. If you didn’t hold generous helpings in those corners, your results for the year just passed are probably modest at best. Stocks were mixed, if we can call it that, with U.S. equities generally rising by a lackluster 1% on the year on a total return basis, but it was ugly for overseas markets in dollar-based terms. Broad measures of commodities suffered too, although gold and oil each climbed around 10%.