Jobs in focus as stocks enter 2012’s final quarter

Jobs in focus as stocks enter 2012’s final quarter
Bernanke speech, ECB meeting and Fed minutes due as Q4 kicks off
LOS ANGELES (MarketWatch) — The U.S. equity market next week will start the final quarter of 2012 with a heavy schedule of reports highlighting conditions in the U.S. economy, with all leading up to figures that will show if there’s been any improvement in the shaky labor market.

The action starts Monday with Federal Reserve Chairman Ben Bernanke slated to deliver a speech on monetary policy. The market throughout the week will get its fill of updates on domestic manufacturing and consumer activity, with a further look at consumers to come from financial results from hospitality chain Marriott International Inc. (US:MAR) and discount retailer Family Dollar Inc. (US:FDO).

Fertilizer heavyweight Monsanto Co. (US:MON) may have a say Wednesday about its business prospects after multinationals including Caterpillar Inc. (US:CAT) and Dow Chemical Co. (US OW) have talked about sluggish global growth. See: 7 global companies warn of tough times ahead.

And as global growth concerns fester, the market will watch for September manufacturing activity figures from China, the world’s second-largest economy, and for any word from the European Central Bank about what, if any, progress has been made in the region’s debt crisis.

“But when the week is all said the done, the biggest headline grabber will probably be the jobs number, as it has been over the past months,” ahead of the Nov. 6 presidential election, said Wasif Latif, vice president of equity investments at USAA Investments in San Antonio. If the jobs and other economic figures offer “more of the same” in terms of snapshots of weakness, “then you could see the market grind lower.”

The Labor Department said the economy in August added just 96,000 jobs, and that the unemployment rate slipped to 8.1%. The nonfarm payrolls figure in September may show the addition of 130,000 jobs, according to analysts polled by MarketWatch. The report is expected on Friday.

IHS Global Insight expects payroll growth of 120,000 jobs. “But that won’t be enough to reduce the unemployment rate, which likely inched back up to 8.2%,” IHS U.S. economists Nigel Gault and Paul Edelstein told clients. “It will probably be too early to detect a QE3 impact on the labor market.”

QE3, or QE-Infinity as some have taken to calling it, refers to the Fed’s recently announced third-round of bond purchases that will continue until the Fed sees solid strengthening in the labor market.

Minutes from the central bank’s September meeting will be released on Tuesday.

Coming off the Fed’s plans to bolster the economy through QE3, Bernanke’s speech Monday in Indianapolis could bring “a bit of an earthquake,” for stocks, said Doug Roberts, chief investment strategist at Channel Capital Research. “Nobody is certain as to what [the Fed] could say,” and the market is sensitive to Bernanke’s words, “since most of the [market’s] rally is being driven by QE.”

U.S. stock indexes performed strongly in the third quarter, during which they were pushed to multiyear highs in anticipation of QE3. The S&P 500 Index (US:SPX) on Friday ended the three-month period up 5.8% and the Dow Jones Industrial Average (US JIA) climbed 4.3%. The Nasdaq Composite (US:COMP) gained 6.2%, pulling its advance this year to nearly 20%.

But stocks ended the final week of the quarter with losses, with a selloff on Tuesday spurred after Charles Plosser, president of the Philadelphia Federal Reserve, voiced doubts that QE3 will provide “much benefit to growth or employment.” Read previous story about Plosser's criticism of QE3.

Stocks also fell on Friday after an index of manufacturing activity in the Chicago-area in September contracted for the first time in three years. See: Chicago PMI drops into negative territory in September.

At this point, what the market “is really looking for is an outlier; something that’s far outside either positive to negative in terms of expectations that really the market hasn’t factored in,” said Roberts, adding that there’s a “disconnect between the market and the economy,” with the market being liquidity-driven by the Fed’s stimulus efforts, as well as similar measures by the European Central Bank and the Bank of Japan.

The ISM’s report on U.S. manufacturing activity, due at 10 a.m. ET on Monday, will be key metric to watch as it gives “on the ground” insight into economic fundamentals as did Friday’s Chicago PMI report, said Latif.

Also to watch will be the ECB’s policy meeting on Thursday. Before the meeting, Spain unveiled its 2013 budget plan and as well as stress tests showing banks in the financially troubled country to be mostly solvent. Spain’s moves were closely watched by investors as European leaders try to rein in the region’s debt crisis. Spain stopped short of asking its euro-zone partners for bailout assistance.

“They’ve been avoiding [a bailout request] for political reasons, but the math is the math,” said Latif. “Given the level of borrowing rates that they are seeing in the market, it seems like sooner or later they will need to accept the offer from the ECB.”

Political considerations may be at play following the first debate between President Barack Obama and Republican party presidential nominee Mitt Romney on Wednesday in Denver. See: Obama lands pre-debate punch on China

Looking at various data, “I think people are factoring in a consensus that the president is going to get re-elected,” that the Democrats will maintain control of the Senate while the Republicans keep hold of the House of Representatives, said Roberts. “Basically, more of the same.”

“I expect to see more volatility [in the market] up to the election,” said Roberts. “Right now, the real question becomes outliers and the employment numbers because the employment reports are still bad, but they’re better than they were.”
http://articles.marketwatch.com/2012-09-29/ma...r-market/2