We’re coming to a focal point in the initial jobless claims game. While today’s print of 344,000 was a positive (initial jobless claims fell 18,000 from 362,000 week-over-week), the seasonal adjustment factor will soon morph from a tailwind into a headwind. Beginning in March, we'll start to see the effect reverse and the market's perception around the momentum in the labor market will begin to weaken and ultimately will turn bearish as the reverse effect peaks in August. It's also worth noting that the sequester takes effect tomorrow, and may result in a notable short-term spike in jobless claims if Congress doesn't take action.
For reference, the XLF dropped 20% in 2010, 32% in 2011 and 15% in 2012 beginning in the late February through mid-April timeframe in each of those years. We think a major factor component of the decline is this labor market seasonality dynamic. We’ll continue to monitor the labor market to see how the recovery continues but we expect big changes to come now that March is right around the corner.