Transition to Higher Rates?

 | Aug 05, 2013 | 1:08 PM EDT
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Sure, bonds are selling off. They should. There are lots of little signs that employment is picking up. Take a look at the Conference Board's employment index tick up, strongest since February clocking in at 112, still one more index that is back to 2008 levels.

Some other small business stocks I measure are signaling that these newer businesses are beginning to hire for the first time since 2008, very important because 60% of all new hires have traditionally been small businesses and with rare exceptions big business is STILL in slim-down mode.

First, the number of F-series trucks sold stands out as a classic measure of the small business, the guy who opens a heating, ventilation and air-conditioning company, the small contractor who does odd jobs. Second is stocks like Winstar, which as my colleague Matt Horween reminds me are a sign that hard wire lines are in demand. Third, the stock of Paychex (PAYX) took out $40. It dropped to $35 after the last quarter because of a lack of new business formation and hiring from small- to medium-sized businesses.

All of these matter. If the transition to higher rates is seamless for the real world it will be so, too, for the stock market, barring more shenanigans from the Federal Government, which remains a toxic drag on industry even as state and local begins to pick up as tax receipts come through.

Watch this trend. It will be meaningful to get to the next level of both under 7% unemployment and a stock market that can handle that dollop of admittedly good news.

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