One thing is on most people's mind: how is the economy going to recover. According to conventional wisdom, the job market is one of the main indicators of economic strength. From newly minted college graduates to industry veterans, many Americans are struggling to find jobs. It's no secret that unemployment is one of the few economic numbers that Americans are looking out for.
Today at 8:30am, the unemployment rate came out and let investors know how the job market and the overall economy is doing. The number determines how companies such as Amazon AMZN, Exxon-Mobil XOM, and Macy's M have helped the economy by hiring people. These companies essentially reflect how the average US consumer is able to find jobs.
A positive unemployment rate indicates that consumers are able to put themselves out there and find jobs, even in the face of uncertain economic times. This indicates to traders that things may be better, after all, and tends to move the equity markets higher.
This morning, traders looked for the unemployment rate to be lower than the estimate of 8.7%. The number came in at 8.5%, lower than analysts' estimates. Equity market futures immediately moved higher, but the rally was short lived as the US government revised the prior unemployment rate from 8.6% to 8.7%. Poor European economic numbers also catalyzed large downward movements in the US equity markets.
Long-term investors should also keep in mind the unemployment rate from the prior period, which was 8.7%. The unemployment rate comes in every month, so long-term investors should keep track monthly snapshots of the job market. Any aberrations or sudden drops could mean that consumers are unable to find fortune with the economy and that companies are unwilling to re-invest in the public.
Investors should also keep in mind that the holiday season may artificially decrease unemployment. Many companies hire temp workers to cope with abnormally high retail volume. However, if investors see a sudden increase in jobless claims, the economy may not be in the best position.
Consumers have a few options when it comes to understanding the US economy. The unemployment rate is one indicator that could help investors gauge where the economy is heading into the future. Investors should also keep up with the major news on a real-time basis to stay on top of major developments that move markets.
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Bullish View:
Traders who believe that the unemployment rate will be positive might want to consider the following trades:
- Long US Equity futures by purchasing shares or call options. If you go with the options strategy, you could purchase a straddle just to reduce risk associated with the bet.
- Short the US Dollar Index, which typically moves inversely to equities. You could also short it against another currency like the Euro.
- Purchase option straddles of an ETF that tracks US equities like the S&P 500 SPDR SPY.
Traders who believe that the unemployment rate will not be positive may consider the following positions:
- Short US equity futures. The futures market typically relies on technical analysis for entry and exit points, so identifying the next support level may be useful.
- Long the Dollar Index, which is likely to move up if equities go down.
- Short the Euro, which could go down as investors fear that Europe will be worse-off than the United States. Negative retail sales may indicate to investors that European retail sales could be even worse than the United States' sales.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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