There was bad news and good news in last Friday’s unemployment report.
In the negative column, fewer jobs were created in the United States than economists had predicted, and January’s jobs gains were not as strong as December’s had been. In addition, the December jobs increase was revised downward from 292,000 to 252,000, according to Barron’s.
On the positive side of the ledger, more than 150,000 new jobs were added in January. The unemployment rate fell below 5 percent for the first time since February of 2008 and earnings increased. In total, average hourly earnings have moved 2.5 percent higher during the past 12 months.
Good news plus bad news equals uncertainty. As we’ve seen, that’s a state of affairs markets strongly dislike. In January, slower growth in China and low oil prices had markets in a tizzy. Last week, the Standard & Poor’s 500 Index gave back more than 3 percent as investors tried to decide whether employment news indicated a rising risk of recession in the United States, according to Barron’s.
When investors are emotional and markets are volatile, it can be helpful to remember the words of Ben Graham, author of The Intelligent Investor, who believed a company’s intrinsic value should be measured by its operating performance rather than its share value. Warren Buffett shared Graham’s thoughts on ‘Mr. Market’ in a 1987 shareholder letter. In part, it cautions:
“…Like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence.”
So, how are companies performing? It depends on which you own but, during the current quarterly earnings season, most companies have reported earnings that exceed expectations. That’s not something that tends to happen during recessions, according to Barron’s.
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* “The News Is More Good Than Bad”