Can Jobless People Guide the Economy?
Today at 8:30am, Initial Jobless Claims will come out out and let investors know how the overall economy is doing. The number determines how companies such as Apple (NASDAQ: AAPL), Pfizer (NYSE: PFE), and Jefferies (NYSE: JEF) have helped the economy by hiring people. These companies essentially reflect how the average US consumer is able to find jobs.
Positive jobless claim numbers indicate that consumers are able to put themselves out there and find jobs, even in the face of uncertain economic times. This indicates to traders that things may be better, after all, and tends to move the equity markets higher.
This morning, traders will look for jobless claims to be lower than the estimate of 375K. If the number is lower than the estimate, equity market futures will immediately move higher, and barring unforeseen European news or other macroeconomic news, will set the stage for the US equity markets.
Long-term investors should also keep in mind the jobless claims from the prior period. Initial claims come in every month, so long-term investors should keep track monthly snapshots of the job market. For example, the previous Initial Claims number was 366K. Any aberrations or sudden drops could mean that consumers are unable to find fortune with the economy and that companies are unwilling to re-invest in the public.
Investors should also keep in mind that the holiday season may artificially increase claims. Many companies hire temp workers to cope with abnormally high retail volume. However, if investors see a sudden increase in jobless claims, the economy may not be in the best position.
Consumers have a few options when it comes to understanding the US economy. The initial jobless claims number is one indicator that could help investors gauge where the economy is heading into the future. Investors should also keep up with the news via Benzinga Pro to stay on top of major developments that move markets.
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Traders who believe that Initial Jobless Claims will be positive might want to consider the following trades:
- Long US Equity futures by purchasing shares or call options. If you go with the options strategy, you could purchase a straddle just to reduce risk associated with the bet.
- Short the US Dollar Index, which typically moves inversely to equities. You could also short it against another currency like the Euro.
- Purchase option straddles of an ETF that tracks US equities like the S&P 500 SPDR (NYSE: SPY).
Traders who believe that Initial Claims will not be positive may consider the following positions:
- Short US equity futures. The futures market typically relies on technical analysis for entry and exit points, so identifying the next support level may be useful.
- Long the Dollar Index, which is likely to move up if equities go down.
- Short the Euro, which could go down as investors fear that Europe will be worse-off than the United States. Negative retail sales may indicate to investors that European retail sales could be even worse than the United States' sales.
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