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We saw some strong releases despite a disappointing jobs report

Overview: The releases that could shape your portfolio this week (Part 2 of 6)

(Continued from Part 1)

A dismal jobs report

The biggest number last week was the disappointing payrolls number, which came in at 142,000—well below Wall Street expectations of 230,000. The two-month revision to payrolls also dropped 28,000.

The only bright spot from the report was that the unemployment rate fell. But that was driven by a reduction in the labor force participation rate, which is stuck at levels we haven’t seen since the 1970s.

Despite the weak jobs report, we had some strong economic data last week—especially the ISM Manufacturing and ISM Non-Manufacturing reports, which showed underlying strength in the economy. In fact, the ISM Manufacturing Report would correspond to GDP growth of 5%. The ISM Non-Manufacturing Index hit a record.

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Suffice it to say that the jobs report seems to be a bit of an outlier and doesn’t really comport with the other reports. August payroll data is notoriously volatile and is often subject to big revisions. So don’t be surprised if, next month, August payrolls are revised upward.

Commercial REITs will be encouraged by economic strength

Commercial REITs in the retail space, like Simon Property Group (SPG) and General Growth Properties (GGP), focused primarily on the IBD / TIPP Economic Optimism Index, which increased slightly from last month.

Office REITs like Vornado Realty Trust (VNO) and Boston Properties (BPO) focused on the jobs report, as employment drives vacancy rates.

Implications for mortgage REITs

Mortgage REITs, like Annaly (NLY) and American Capital Agency (AGNC), are driven by interest rates. Rates have continued to move lower. This has surprised many strategists and analysts who were predicting the end of quantitative easing (or QE). They thought the proximity of rate increases would move long-term rates higher. But that simply hasn’t happened.

Implications for homebuilders

Toll Brothers (TOL) reported earnings last week. Its numbers were good, but order growth was weak. We saw only a 1.4% increase in average selling prices for new orders, compared to 12% increases for deliveries.

Homebuilders may have hit the point where they can’t increase prices any further. We’re entering the seasonally weak period for the builders. For them, 2014 is more or less already in the books.

Continue to Part 3

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