Stocks are rebounding from a rough ride, but this is characteristic of many pullbacks since the bull market began in March 2009.  According to the analysis of Liz Ann Sonders of Schwab, the stock market appears to be transitioning to a market driven more by traditional fundamentals, and less by Fed policy. On the bond side, Bill Gross of PIMCO believes the Fed is overly optimistic in its outlook for declining unemployment, and the recent spike in bond yields has been overdone

Long Train Running:  Why Stocks are Rebounding. “After a very choppy and rough ride from the end of May through the end of June, the stock market appears to

[be] finding its legs.”  The pullback as of July 3 was limited to about 6% from peak-to-trough….this is consistent with pullbacks since the bull market began in March 2009—17 in number of 5%-or-more pullbacks.  The median of the previous 16 was a 7.7% decline and they took a median 20 days to come back.  Of the previous 16, only two saw a decline exceeding 10%; but there were three that were just shy of that threshold, as cited by the article and courtesy of Birinyi Associates.  In conclusion, “volatility among the risk asset classes is likely to persist as we move toward Fed tapering. But we appear to be transitioning to a market driven more by traditional fundamentals, and less by Fed policy.”

Click here to read

U.S. Employers Add More Workers in June Than Forecast.  It sounds like pretty good news, but one still needs to look beyond the headline numbers.  “Payrolls rose by 195,000 workers for a second month, the Department of Labor reported Friday, exceeding the 165,000 gain projected by economists in a Bloomberg survey.  The jobless rate stayed at 7.6%, close to a four-year low.”  More good news—“revisions added 70,000 jobs to the employment counts in April and May.”  The unemployment rate didn’t budge, however, because “more people entered the labor force and most of them were able to find work.” Hence, there was no change in the rate of unemployment.  Another statistic that rarely gets headline news is the “underemployment rate—which  includes part-time workers who’d prefer a full-time position and people who want to work but have given up looking.  This rate rose to a four-month high of 14.3% in June from 13.8 percent the month before.”   Mr. Bernanke has said the Fed expects the unemployment rate to fall to about 7% by the middle of next year.  In the next article, Bill Gross of PIMCO is skeptical of this expectation.

Click here to read

The Tipping Point.  “Yields have adjusted too much…we may have reached an inflection point  of low Treasury, mortgage and corporate yields in late April, but this is overdone,” according to Bill Gross of PIMCO.   He believes “the Fed’s forecast of the economy which prompted taper panic is far too optimistic.” If 7% is the magic number to begin tapering, he believes that number is farther away than the Fed’s forecasts suggest. “In late April, both the Fed and PIMCO observed that bond markets were approaching a tipping point…yields were too low, prices too high, both for the investors’ and economy’s  own good.”  So, on May 22, when Chairman Bernanke began his  discussions of tapering asset purchases ”the Fed tilted overrisked investors to one side of an overloaded and overlevered boat…selling begat more selling…it no doubt induced market panic.”

Click here to read

And in case you missed it, click here to read last week’s blog post on using money to buy happiness and the rate of economic growth.

We hope you enjoy reading these articles along with us and that you find them informative.  Please forward this to your friends and family.

J. Mark Nickell & Co.


Disclosure – The articles mentioned in This Week with J. Mark Nickell & Co. are for information and educational purposes only. They represent a sample of the numerous articles that the firm reads each week to stay current on financial and economic topics. The articles are linked to websites separate from the J. Mark Nickell & Co. website. The opinions expressed in these articles are the opinions of the author and not J. Mark Nickell & Co. This is not an offer to buy or sell any security.  J. Mark Nickell & Co. is under no obligation to update any of the information in these articles. We cannot attest to the accuracy of the data in the articles.