Markets digest nasty dose of reality
Disagreeable U.S. payroll
data, last week, spooked equity markets that were already feeling jittery due
to concerns about earnings prospects.
Some cheery folk on Wall Street tried to look past the data, saying that
it is normally a lagging indicator.
They forgot to mention that in the new, more flexible economy with
just-in-time labour, employment conditions do not lag to the extent that they
did previously. In other words, it is
becoming more a coincident than a lagging indicator. The more sober observers considered the dismal job market figures
as further indication that after the largely inventory-related boost to growth
in the first quarter, economic performance for the rest of the year is not
going to be as rosy. This means that
forward earnings expectations have to be revised in a more realistic direction,
and given that there is no further lift to come from declining interest rates,
equity valuations are going to be
