- On Friday, investors were handed the news the US lost only 11,000 jobs in November—significantly better than the expected loss of 130,000 jobs.
- Those waiting for improving unemployment to jump into stocks missed the 75% rise in global stocks since March 9th.
- In other news, the Sarbanes-Oxley Act of 2002 is under Supreme Court review to determine whether portions are unconstitutional, and Japan's newish government passed a law Friday to block planned sales of Japan Post shares.
On a fine December day, a jobs report, the Sarbanes-Oxley Act, and the Japan Post walk into a bar. Of course, we're joking. But sometimes it feels like the news is crowded with a veritable mish-mash of characters, each with their own punch line. For investors, it could be hard to distinguish the serious information from the rest.
On Friday, investors were handed the news the US lost only 11,000 jobs in November—significantly better than the expected 130,000 jobs lost—and the unemployment rate fell from 10.2% to 10%. 10% on its own isn't great, but a decrease when most were expecting the opposite is a positive and shows labor market improvement. Good news for investors waiting on this economic indicator to signal recovery, right?
Except, those waiting for improving unemployment to jump into stocks missed the 75% rise in global stocks since March 9th.* The theory goes, high or increasing unemployment depresses consumption, leading to weaker business activity and delaying economic recovery. However, businesses start hiring once business activity improves—not before.
History shows us economic recovery begins before the labor market improves—and stocks start rising even earlier in expectation of economic recovery and improving earnings. The last nine months were practically textbook—stocks surging hugely despite mixed economic data and rising unemployment. Investors waiting for unemployment to turn often find the joke's on them.
Unemployment hogs the spotlight these days, but there are other acts not to be missed—like the Sarbanes-Oxley Act of 2002. "Sarbox" was the regulatory knee-jerk reaction to the corporate and accounting scandals of the last bear (Enron, WorldCom, Tyco International, etc.). The act created the Public Company Accounting Oversight Board (PCAOB) to oversee, inspect, regulate, and discipline public companies' accounting auditors. Now, it looks like PCAOB may have violated constitutional law because its board members were hired by the Securities and Exchange Commission (SEC) rather than appointed by and reporting to the President. This case will be reviewed by the Supreme Court.
Though it's still early to handicap outcomes, removing portions or even completely eliminating Sarbox could lift onerous regulation and restrictions on businesses—a positive. If Sarbox doesn't end up being overturned, it'd probably have little negative impact on markets going forward since companies have already been dealing with its regulations for years.
In its corner of the world, Japan is saying sayonara to postal service privatization. Its newish government passed a law Friday to block planned sales of Japan Post shares. Four years ago, then-Prime Minister Junichiro Koizumi set in motion a 10-year process to deregulate Japan Post operations. Selling shares of Japan Post's banking and insurance arms was a major step in Koizumi's plans.
Instead, the new government will review and reform Japan Post's operations—and keep it as a state entity. This is a departure from years of Japanese free-market reform and signals the government's new direction. Though this is a disappointing turn for would-be investors and free-market advocates, the impact of Japan Post privatization may have been muted anyway due to Japanese culture's reluctance to wholly embrace capitalism.
The world is full of rotating characters, and some acts have more power to move markets than others. The obvious news gets digested fast and its effects are often short-lived. Often, investors need to look beyond the obvious and/or local news to gain more powerful market insight.
*Source: MSCI World Index, Bloomberg