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Tuesday, March 31, 2009

Expected March Unemployment Estimate for Friday April 3, 2009. Could the Stock Market React Positively?

It seems like whenever unemployment numbers are about to come out the market sells off. This has been the case lately, but 2 out of the last 3 months the market actually rallied after unemployment numbers came out. The estimate for this Friday (March) is an 8.5% unemployment rate, up from 8.1% in February. If these numbers come in 3% or more above 8.5% (or higher than 8.7% unemployment rate), we could see a huge market sell off, and I think we'll break below 750 on the S&P 500, and even set new lows in the weeks to come. However if these numbers come in better than expected (wishful thinking), we could see the S&P at 900 in the weeks to come. My guess is that the analyst estimate is quite accurate, but revisions to the previous months could also have a significant effect on the markets. If revisions for January and February are dismal it could also put selling pressure on the market. What we want is for the analysts to overestimate to the downside. When analysts become too bearish that is usually when things start to reverse, this is because if we beat estimates it is a good sign. Think of it as earnings for an individual company and analysts expect you to make $1 a share, but you come out and make $1.50 per share, the stock will rally on such positive news. If analysts expect the unemployment numbers to be 8.5% and we come in with 8.4% or less, we would take this as a good sign, and the market would most likely rally.


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