Struggling Wall Street eyes jobs data

With Wall Street struggling to keep upward momentum, investors will keenly await a report on the US labor market in the coming week that could be a key driver of market action.

Friday’s data on US unemployment and job creation may provide clues on whether the economy, which is showing strong growth, can sustain its recovery.

In the week to Friday, market action was choppy, sending the Dow Jones Industrial Average down 1.04 percent to 10,067.33, as the market closed January with its worst performance in 11 months.

The technology-dominated Nasdaq composite slipped 2.63 percent to 2,147.35 the broad Standard & Poor’s 500 index declined 1.64 percent to 1,074.87.

Many analysts say the latest declines are the start of a “correction,” which is usually a pullback of around 10 percent that can take some of the froth out of the market, rather than an end to the bullish period.

“The current correction is coming hard and fast, which is more typical of corrections than bear markets, which in the beginning tend to sneak down without much notice or fanfare,” said Bob Dickey at RBC Wealth Management.

“We expect the correction low will come over the next week or two... However, the Dow first may have to go below the psychological floor of 10,000 in order to trap more of the bears out in the cold.”

Fred Dickson, market strategist at DA Davidson & Co., said Friday’s report on US gross domestic product surging to a 5.7 percent pace in the fourth quarter was a big positive for Wall Street.

The GDP data “report reinforces our assessment that the economy hit the bottom point of the recession late last summer and is slowly gaining traction,” Dickson said.

“In addition, the report reinforces the notion that the current stream of positive earnings reports hitting the tape this month are real and should be sustainable going into the first half of 2010. Bottom-line, this is bullish news for the stock market.”

Others noted that GDP was boosted by special factors such as inventory adjustment and that the economy may not be growing fast enough to create jobs.

Augustine Faucher at Moody’s Economy.com said it will take more time for the economy to get on a sustainable track.

Based on the latest data, he argued that “growth in the first half of 2010 will be below that needed to keep pace with an expanding labor force, and the unemployment rate will move higher, peaking at close to 11 percent in the fall.”

The upcoming employment data thus becomes critical to the outlook for the economy and the markets, say analysts.

The consensus forecast calls for the report to show a net gain of 50,000 jobs, following a loss of 85,000 in December. That would be a big positive, although not enough to bring down the unemployment rate from its level of 10 percent.

“For the first time in a very long time, the consensus is expecting a gain in employment,” said Gina Martin at Wells Fargo Securities.

Dean Maki at Barclays Capital said he expects the economy is gaining momentum, highlighted by strong business spending, that will translate into job growth.

“We view this improvement in business fixed investment spending as a clear signal that a self-sustaining recovery is underway, as businesses are feeling confident enough to spend more,” Maki said.

“We think this confidence will translate soon into steady job growth; we look for consistently positive job growth starting in the first quarter.”Avery Shenfeld, economist at CIBC World Markets, said Wall Street nerves are being frayed by a variety of issues, ranging from moves in China to cool an overheating economy to Greece’s fiscal woes to President Barack Obama’s effort to curb risky bank actions. But he said these may have been excuses to sell “after a nice run-up in stocks that has investors feeling that they have priced in a lot of good news.”

AFP