Jobs data to be a big
deal for record-high stocks
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[August 27, 2016]
By Noel Randewich
SAN FRANCISCO (Reuters) - Wall Street will
fixate on a wave of U.S. economic data next week, crested by payrolls
data on Friday that could sway expectations about the timing of future
interest rate hikes and spark volatility in record-high stock prices.
Fresh data about employment and consumer confidence could help investors
solidify expectations for a December interest rate hike from the U.S.
Federal Reserve, or lend weight to a minority of strategists predicting
a rate rise as early as next month.
Fed Chair Janet Yellen said the case for a rate hike is strengthening,
but she left open the timing of what would be the first increase since
"She did put the market on notice that she'd like to raise rates, which
means the payrolls data out on Friday is very important. The wage
component, length of the workweek and types of jobs, all are crucial in
order to extrapolate to inflation,” said Quincy Krosby, market
strategist at Prudential Financial in Newark, New Jersey.
Following Yellen's speech, prices for fed funds futures implied
investors see roughly a 60 percent chance of a December hike, up from
just above 50 percent on Thursday. Investors see chances of a September
hike at 36 percent, up from 21 percent.
Almost a decade of ultra-low interest rates has helped propel stock
prices to record highs, even as the economy expands at a lukewarm rate
and U.S. largecaps struggle with over a year of declining earnings.
Expectations for higher interest rates would likely continue a recent
trend of investors selling high-dividend payers like utilities and
telecoms, in favor of sectors tied to economic expansion like financials
Underscoring the importance of the upcoming jobs report, Yellen pointed
to a recent rebound in employment and said in her speech at a symposium
in Jackson Hole, Wyoming that the Fed expects the economy to continue
"Chairwoman Yellen put a magnifying glass on next Friday’s jobs report.
That really I do believe is going to be a determining factor of the
market’s direction for its next leg," said David Schiegoleit, managing
director at U.S. Bank Private Client Reserve in Los Angeles.
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Job seekers fill out applications during the 11th annual Skid Row
Career Fair the Los Angeles Mission in Los Angeles, California, U.S.
on May 31, 2012. REUTERS/David McNew/File Photo
The August jobs report is expected to show the U.S. economy created 180,000 jobs
this month after rising by 255,000 in July, according to a Reuters poll. The
forecast is for the unemployment rate to dip one-tenth of a percentage point to
Other data in investors' crosshairs next week include personal consumption on
Monday, consumer confidence on Tuesday, and car sales and factory activity on
The S&P 500 fell Friday for the fifth time in six sessions, but is just 1
percent below its record high set earlier this month.
"Any potential strength in consumer and jobs data could be very helpful to
support equity prices where they are right now," said Jon Adams, senior
investment strategist at BMO Global Asset Management in Chicago.
(Reporting by Noel Randewich, additional reporting by Chuck Mikolajczak; editing
by Rodrigo Campos and Chizu Nomiyama)
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