Not even data confusion could stop the stock market advance last week. Will the real unemployment rate please step forward?
The Dow rose 829 points on Friday and the Nasdaq closed just below record highs. All this despite a misclassification error in the jobs report that was released on Friday. The cause of the misclassification is that not all furloughed workers were classified as unemployed. This is actually the third straight month with this error. It was noted by the Bureau of Labor Statistics that had this error not occurred that the unemployment rate in March would likely have been 5.4% instead of the 4.4% reported. In April, likely 19.7% instead of the 14.7% reported and Friday’s report for May would have been roughly 16.3% not the 13.3% that was reported.
For the week ahead, let’s watch interest rates and let’s watch gold. Unlike the prior two months, where interest rates were range bound and gold provided nice diversification benefits, this month we are seeing interest rates spiking higher and gold selling off somewhat aggressively. The key question is does the rotation out of Treasuries and out of Gold and into stocks continue? One last thing to keep an eye on is the spreading of the yield curve. The 10-year/2-year spread is reaching a level that has caused problems for stocks in the past.
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