The College Investor’s Market Thoughts – September 2, 2011

Last week it seemed like the economy could be going in the right direction.  The hurricane didn’t do as much damage as previously thought, and some indicators were looking positive.  But, then on Friday, the jobs number came in flat, and it sent the Dow Jones Industrial Average negative for the week.

Here are some of the key factors that drove the market this week:

1. Employment Situation: Hiring was unchanged last month, and revised downward the previous two months.  This really shows weakness in the economy.  There were two interesting points in this report: hiring froze, but layoffs did not increase.  So businesses just seem to be hunkering down for extended economic weakness.  The other interesting point was goods-producing jobs decreased while service jobs increased.  So, while manufacturing slowed down, the service sector grew.  This could show a good Fourth Quarter for retailers.
2. ISM Manufacturing Index: This index edged down, but it still stayed about the 50-level, which indicates growth (albeit very little).  This beat expectations and showed that a recession may not be coming, just prolonged weakness.
3. Consumer Spending/Confidence: There were a myriad of reports this week about consumer spending and consumer confidence.  While August is traditionally back to school season, some retailers showed strong gains, and others floundered.  That makes it hard to get a good read on the economy – as it could be very retailer specific.  With consumer confidence, it was still very low – but with the poorest income segment being much lower than the general population.  This indicates that those without jobs are still struggling, but those with employment are still maintaining some confidence.

The College Investor’s Take

What I find interesting is that confidence for some is at all time historical lows.  Whenever we get to an extreme, it usually indicates change is on the way.  So, this could be a sign of upcoming positive momentum in the economy.  The coming holiday season will really be a gauge of that.

• If you didn’t look into insurance stocks, now may be a good time to do so.  As a said last week, there could be some good buys in this sector if damage doesn’t pan out to be catastrophic.  Also, there are other segments beyond property loss that could be a nice investment.
• Energy stocks also still look good.  If you don’t have these as part of your portfolio, you should consider it.  They pay nice dividends and are poised to grow over the next several years.
• MLPs.  In the same boat as energy stocks, I encourage investors to look at MLPs, especially around energy transport.  As with energy stocks, these companies pay nice dividends, and should grow with that sector of the economy.  However, it is important to remember the MLP tax treatment come tax time.

Readers, what are your thoughts about the employment situation and consumer confidence?

This post was written by...

Robert – who has written 317 posts on The College Investor.

Robert is the founder and editor of The College Investor, a personal finance site dedicated to young adult and college student finances. You can learn more about him here and connect with him on Twitter or Facebook.

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