October 2, 2015

On each daily post I mention the percentage gain or loss in the S&P 500 and the Toronto stock index for the day. Everyone tends to focus on the closing numbers. But sometimes the closing number has little to do with how the markets traded for most of the day. For example today, the market was down noticeably before finishing the day with a gain. So, really the closing numbers are just where the market was at 4:00 eastern time and may not be all that much more relevant than where they were at, for example, 11:45 am. If the S&P 500 closes at say 1951 it is sometimes said that the market will start the next trading day at that level. That is completely false. The market opening each day is based on bid and ask prices just before the market opens and can and often does diverge greatly from the previous day’s close.

Having said that, for what it is worth, on Friday, as at the close, the S&P 500 was up 1.4% and Toronto was up 0.7%.

Earlier in the day the market had been down due to the weak September jobs report in the U.S. And it did look weak at 142,000 versus an expectation of a bit over 200,000 and especially as it came with a downward revision to the numbers for July and August as well. But it’s probably too early to tell if this is the start of a slowdown in the U.S. versus a one-time blip in the modest upward trend they have been on.

One thing that never ever seems to be mentioned is the precision of the numbers.

A quick check a the source of these numbers shows that they are sample-based and seasonally adjusted.  http://www.bls.gov/news.release/empsit.nr0.htm

The source data indicates “An over-the-month employment change of about 100,000 is statistically significant…”. So one might question how the financial press can get so very excited about the number coming in 60,000 too low when it takes 100,000 to be statistically significant.

Then there is the seasonal adjustment. Without that we might see a big increase in September as the season changes. Certainly in November and December the raw numbers would see big job increases due to the Christmas season and all that leads up to that. So, the numbers do indeed need to be seasonally adjusted. But that must be an imprecise process. It cannot be known with precision how many jobs were affected simply by the seasonality impact.

Overall, while I would not want dismiss the notion that the jobs growth in the U.S. is slowing, I would caution against getting too excited about one month’s reading and about ascribing unrealistic levels of precision to a seasonally adjusted sample-based number.

Turning to individual stocks, most of the stocks on our list closed higher today. In particular I notice that the Canadian Western Bank preferred shares that I bought yesterday for $16.80 closed at $17.73, up 2.8% versus yesterday’s close.

I won’t get too excited by my little gain on these preferred shares given that overall our stock picks this year are somewhat trailing the TSX index. Hopefully our picks can play catch-up in this fourth quarter. In any case, an evaluation of whether we doing better than the TSX requires more than nine months or a year and we remain significantly ahead of the TSX index in the longer term.