Getting Beyond the Fears

Some have blamed the market correction on the jobs picture, but another fear appears to have taken center stage

By Joseph Lisanti

After climbing for almost a year, stocks have been taking a breather. We view the recent decline as a normal correction. Despite lagging payroll numbers, most gauges show the U.S. economy gaining strength. So why are some investors worried?

The jobs situation has been cited as a prime cause. While the household employment survey shows a gain of 563,000 jobs since March 2003, the payroll data suggest that there are 2.9 million fewer jobs in the U.S. today. One reason for the discrepancy may be that many people who work as consultants are former full-timers now toiling (without benefits) for their previous employers. In answering the household survey, they may call themselves employed because they are getting regular payments from a single company. They don't show up on the payroll survey because they really aren't in the company's employ. Standard & Poor's believes that U.S. companies will begin to hire full-time workers in greater numbers as the economy strengthens in the months ahead.

Although job worries remain, the main concern in recent weeks appears to have shifted to terrorism. The bombings in Madrid earlier this month and the public hearings in the U.S. by the National Commission on Terrorist Attacks have focused attention on civilization's vulnerabilities. Yet this is not the first time that fear has been a fixed backdrop to everyday life.

Anyone old enough to remember the Soviet Union will recall the words "duck and cover." In the 1950s, U.S. school children were trained to duck under their desks and cover their eyes in the event of a nuclear attack. The children may have been reassured, but few adults were.

From the time the Soviets exploded their first hydrogen bomb in August 1953 to the breakup of that nation on Christmas Day 1991, the world lived in almost constant fear of nuclear war. Despite the fear, the S&P 500 index rose more than 1,500 percent in that period.

Lisanti is editor of Standard & Poor's weekly investing newsletter, The Outlook

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