Wall Street Week - Counting the Dead

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By The Greek - Economy & Markets:

Burdened by harsh employment data and crippling corporate news, the stock market took a step backwards last week. The Dow Jones Industrials Index slid 4.8% in its first full week of trading in the new year. If you have been reading our blog, you were not surprised, as we warned of a "Bear Market Wake Up Call" in our "Week Ahead" article.

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Beginning on Wednesday, with the release of the ADP Private Employment Report, the market became consumed by fear. Anxiety kept building toward Friday's Employment Situation Report, which is offered monthly by the Department of Labor. In the meantime, Intel (Nasdaq: INTC) and a slew of retailers cut earnings guidance, workforce and stores in Macy's case (NYSE: M).

Geopolitical troubles compounded upon the situation, as the conflict in Gaza spread to include Lebanon. At the same time, much of Europe faced a new cold war with Russia, literally, as Moscow turned off the gas that warms much of Southeastern Europe and the Balkans. Slovakia declared a state of emergency, as frigid weather met Putin's cold heart. By the end of the week, pressure from the world community had forced a U.N. ceasefire resolution and also drove Russia and the Ukraine to find a way to keep the gas flowing to Europe. The two nations have agreed to the use of monitors to insure gas is not illegally siphoned. As for Gaza, missiles continued to fly and bombs to land.

ADP's Private Employment Report on Wednesday showed nonfarm payrolls fell by a whopping 693K in December. Challenger's Job-Cut Report the same day noted planned layoffs rose by 275% in December, versus the prior year period. It was the worst such December since at least 1993, when tracking began. Details of the week's jobs reports showed that the recession had spread to encompass small and medium sized businesses and almost every segment of the economy, except health care.

As retailers reported terrible individual December chain store sales on Thursday, the International Council of Shopping Centers (ICSC) announced that this past holiday shopping season was in fact the worst since 1969. Even stalwart Wal-Mart (NYSE: WMT), which had returned 20% to investors in 2008 when including dividends, noted worse than expected December sales and reduced its fourth quarter guidance.

ADP's jobs data promptly raised concern about Friday's DOL report. As a result, the economists' consensus forecast for the monthly job loss tally crept slowly higher. Friday's data only confirmed the market's fear. Unemployment was reported up four-tenths of a percentage point, to 7.2%. This exceeded the consensus view for 7.0% and even the high-end forecast for 7.1%. Nonfarm payrolls fell by 524K on net in December, and the outlook seems bleak for January. Auto makers, parts suppliers and metal fabricators are expected to cut many more employees, and some argue 60K have already been lost this month. Meanwhile the poor fourth quarter reports that are widely anticipated for retailers should drive store closings, bankruptcies and more job loss from that segment of the economy. Needless to say, the market had plenty good reason to drop some weight this past week.

While employment is a known lagging indicator for the economy, most see ongoing job losses through 2009. Thus, the significance of Obama's stimulus package cannot be overstated. It appears the President-Elect has done a good job of building a bipartisan coalition of Republicans and Democrats. If that can be accomplished, maybe anything can. Economic survival, let alone revival, seems to hang in the balance.


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