Market Roundup
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Where can jobs be found in this country? Which industries are doing better and which are doing worse?

The ADP Research Institute tries to answer those questions for us the first Wednesday of every month. Then the Labor Department weighs in two days later. So what did ADP say in its October report today?

=> Overall employment grew by 182,000 last month. That was the weakest reading since July, and a deceleration from September’s downwardly revised 190,000k figure. It also confirmed we’ve downshifted from the kind of 200,000+ numbers we saw throughout 2014.

=> Manufacturing continued to struggle, with another 2,000 jobs lost on the heels of last month’s 17,000-worker drop. The service sector came in stronger. But the rate of job gains there dropped to 158,000 from 182,000 in September. Financial sector growth weakened notably, as did job gains in professional and business services.

=> Small businesses continue to add positions at a healthy clip. Those with 49 or fewer employees added 90,000 jobs. But large companies with at least 500 workers on their payrolls added only 29,000 jobs. That was a sharp deceleration from 101,000 in September.

Are more people destined for the unemployment lines?

So if I had to sum up the message here, it’s that the U.S. economy is starting to bend. The burden of a slower world economy and a weak energy sector, among other threats, is causing job growth to decelerate.

Large manufacturers and other multinational companies are getting hit the hardest. But as layoffs mount here at home, their struggles will likely spill over into more domestically focused industries and businesses, too. The slowdown in service sector growth may be the first sign of that.

Will it “matter” to the markets? Well, the negative economic news of late certainly didn’t derail the October rally in the S&P 500 or the Nasdaq-100, or the gains in the first couple days of November. But I can’t help but note the economically sensitive Dow Transports remain depressed, and that many of the divergences I’ve highlighted persist.

So maybe the answer is that it matters to SOME stocks, many bonds and several commodities. You can profit in select stocks that have strong, company-specific stories attached to them – as we’ve seen in technology. You can profit in less economically sensitive names that offer yield protection, solid ratings, and corporate catalysts. Two names that foot the bill in my Safe Money Report just moved nicely higher.

But broad, unhedged bets on the market? In an environment where bear market trading behavior can increasingly be found in many corners of the financial world? That’s a bridge too far for me here, despite the rally over the past few weeks.

So what do you think of the latest labor data? Is the relative strength in services and small business hiring enough of a positive to offset the weakness in larger, multinational industries? Do you agree or disagree with my market stance, and do you think these jobs figures support my view or undercut it? Make sure you head over to the Money and Markets website and weigh in when you get a minute.

Our Readers Speak

Yesterday’s piece on Bill Gross and his opinions on zero percent interest rates sparked quite a bit of conversation online.

Reader Tony D. agreed with Gross’ view on the counterproductive impact of current policy, saying: “ZIRP is placing a huge drag on the economy by changing the normal economic incentives to borrow and lend. Money must have a time component (i.e. an interest rate return) to function properly. I am afraid the long term consequences of the current Fed policy have not yet manifest themselves.”

Reader Andoheb also agreed via these comments: “ZIRP has dramatically widened wealth inequality and I suspect many bitterly resent this. ZIRP also hurts the economy by encouraging huge mal-investments in marginal enterprises.”

Reader Henry A. picked up on that message, too, writing: “Rates set by central planners that deviate from market rates are always disruptive to the economy. They tend to cause mis-allocation of capital that creates speculative bubbles and crashes. The purpose of the artificially low rates set by the current Fed is to encourage more credit (read: debt). But unless you can produce real growth, more debt just makes you even more vulnerable.”

But Reader Bud W. said that while it may be bad medicine, cheap money is the best option we have right now: “With all the borrowing, low rates, while not a good policy, are enabling heavy borrowers to stay afloat. If market-set rates were allowed, a lot of people as well as a lot of governments would not be able to function.”

Keep those comments coming if you haven’t added any yet. You can do so using this link.

Other Developments of the Day

● What do you know? Now several major banks are reportedly being investigated for rigging the U.S. Treasury market.

That follows several rounds of charges and massive fines related to rigging mortgages, short-term interest rates, commodities, currencies, and the World Series outcome. I’m kidding about the last one (I think). The investigation focuses on the 22 so-called primary dealers, who are closely involved in government bond auctions.

● Will China make the effective transition from a manufacturing/industrial economy to one focused more on consumer spending and services? That’s the question the Wall Street Journal tried to address today.

Some investors have bought domestically focused Chinese stocks because they’re adopting the positive view. But plenty of other data suggests it will be a struggle, and that the overall economy remains vulnerable. What are your thoughts here?

● Would you buy shares of the U.S. Postal Service if it were to launch an IPO? Because that’s what a fairly large number of Japanese investors just did in that country.

Japan Post Holdings Co. and two other subsidiaries focused on banking and insurance launched successful IPOs, raising $12 billion in a move to privatize mail service. The U.K., Belgium and Italy have launched similar efforts in the past.

● German Carmaker Volkswagen is in even hotter water today after news that it may have understated carbon dioxide emissions, rather than just nitrogen oxide pollution. The firm’s shares dropped almost 10% after Volkswagen said roughly 800,000 vehicles may be affected by the new problems — and that they could cost as much as 2 billion euros to fix.

Is this the kind of news that can push Volkswagen over the edge? Do you think investing in mail service is a good play domestically or internationally? What do you think of the news that big banks allegedly rigged yet another market? Head online and let me hear about it.

Until next time,

Mike Larson