Week Ahead: Can Jobs Report Underpin Current Market Rally?

Stocks swung both positive and negative Friday, but still ended the week at their highest level since early January, building on gains that began mid-month. A fledgling recovery in the volatile oil market, some relatively strong economic data, and signs of strength overseas lent support.

By midday Friday, the S&P 500 (SPX) had rallied nearly 8% from the two-year low of 1810 it posted back on February 11, and had pushed through key psychological resistance at 1950. Some analysts viewed last week’s action as impressive from a technical standpoint, because the index had fallen below 1900 in intraday trading Wednesday, only to roar back to 1950 by Thursday. The Dow Jones Industrial Average (DJIA) was also up nearly 8% from its February lows, nearing 16,700 by midday Friday after falling as low as 15,503 on February 11. The tech-heavy NASDAQ Composite was up more than 9% from its mid-month lows as of midday Friday.

What Will Jobs Report Reveal? This week will be busy from a data standpoint, with Chicago PMI on Monday, auto and truck sales Tuesday, and the Fed Beige Book on Wednesday. But non-farm payrolls, due early Friday, will likely get the most attention. The January report showed unemployment falling to an eight-year low of 4.9%, but job growth of 151,000 came in below consensus. However, investors took heart in stronger-than-expected growth of 0.5% in average hourly earnings to $25.39 an hour. So what will this Friday’s non-farm payroll report show? Consensus is for jobs growth of 195,000, according to MarketWatch, with unemployment holding steady at 4.9% and no growth in wages.

Did Wage Growth Translate? Market watchers have followed earnings and government data to determine if the wage increase reported in last month’s non-farm payroll report found their way into consumer spending. For instance, retail earnings reports over the last two weeks have been mixed, with Wal-Mart Stores, Inc. WMT and Target Corporation TGT earnings coming in below many analysts’ expectations, but some other retailers posting stronger profits and sales than analysts had expected. Also, a tough read on housing, as existing home sales have risen slightly and new home sales have fallen sharply. Consumer spending rose 0.5% in January, but the Conference Board reported that consumer confidence fell in February to its lowest level in seven months. Durable goods orders rose 4.9%, and U.S. gasoline sales showed signs of strength late in the month. This week, auto and truck sales on Tuesday and factory orders data on Thursday could provide further clues regarding consumer sentiment.

Oil Producers Look Ahead to March: U.S. crude oil futures climbed over $34 a barrel Friday for the first time in four weeks, while Brent futures topped $37 intraday, due in part, some analysts said, to reports that major oil-producing countries might meet in March to discuss freezing production at current levels. Though oil prices were up nearly 30% from lows posted earlier in February, the market swung back and forth at times last week. At one point, futures turned lower after a Saudi official said the country wouldn’t reduce production. This week, investors are likely to continue watching oil closely, as the oil market and equities remain tightly correlated.