In the U.S.: Stock-Index Futures Decline After Employment Report

4 May 2012

“A lousy jobs report” among other factors lead some to think that “chances for a QE3 are better right now.”

U.S. stock futures retreated, indicating the Standard & Poor’s 500 Index will decline for a third straight day, after a government report showed employers added fewer jobs than forecast last month.

S&P 500 futures expiring in June fell 0.3 percent to 1,381.20 at 8:53 a.m. New York time. Dow Jones Industrial Average futures lost 41 points, or 0.3 percent, to 13,102 today.

“It’s a lousy jobs report,” said Michael Mullaney, who helps manage $9.5 billion as chief investment officer at Fiduciary Trust in Boston. “The headline number is well below expectations, but the figures are even murkier underneath the surface. The drop to 8.1 percent in the unemployment rate is driven by a decrease in the labor participation rate. The chances for a QE3 are better right now,” he said, referring to a third round of asset purchases to stimulate the economy.

Equity futures dropped as payrolls climbed 115,000, the smallest gain in six months, after a revised 154,000 rise in March that was more than initially estimated. The median estimate of 85 economists surveyed by Bloomberg News called for a 160,000 advance. The jobless rate fell to a three-year low of 8.1 percent and earnings stagnated.

The S&P 500 rose 11 percent this year amid better-than- estimated economic and corporate data. About 71 percent of S&P 500 companies that reported results since the start of the earnings season have beaten projections, according to data compiled by Bloomberg.

Federal Reserve policy isn’t designed to prop up U.S. stock prices as many people believe, according to David Einhorn, president of Greenlight Capital LLC.

Put Option

“The real Fed put is under the bond market,” the hedge- fund manager wrote in a commentary yesterday on the Huffington Post website. He was referring to a put option, which sets an asset’s minimum price for a later sale.

Stocks and bonds have often moved in opposite directions during the past three months. The S&P 500 and a Treasury note and bond index, compiled by Bloomberg and the European Federation of Financial Analysts Societies, were used in the comparison.

“The Fed has all but guaranteed that it will do what it takes to stop bond prices from falling” by promising to keep its target interest rate near zero through 2014, according to Einhorn, based in New York.

The Bloomberg/EFFAS index was 0.2 percent higher for the year through yesterday after rebounding from losses in February and March. Those declines followed gains in January that lifted the indicator to a record.

Central bankers don’t understand investor psychology, Einhorn wrote. “If you want to get people to sell bonds and buy stocks, the best way to do that is to show them that bond prices can, and do, fall.”


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