New York Correspondent
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THE main topic of discussion, hope and rumour on Wall Street this week is what market analysts call 'The Pivot Point', 'The Big Enchilada', the 'Key to the Rally' - also known by its formal title, the July Employment Report.
Due out this morning, investors have been anticipating the arrival of this data point for more than a week's worth of trading now, focusing on it as a crucial determinant of the stock market's short-term momentum as the rally heads into its fifth week.
'The jobs report is going to be the catalyst, one way or another, for stocks as August gets under way. Friday will be a reality check for the market after a bull run that's taken us back into territory we haven't seen since last fall,' said Jim Awad, managing partner at Mercury Asset Management.
Yesterday morning in New York, investors started the day's trading in nervous fashion after a private-sector jobs report on Wednesday showed a steeper-than-expected decline, but the weekly unemployment number released just before the opening bell beat expectations. By noon, the Dow Industrials was down about 17 points at 9,263.82.
'There's a lot of tension between lots of sideline cash not wanting to miss out on the next leg of the rally and traders who think we're overbought and want to short the rally,' said Marc Pado, chief market strategist at Cantor Fitzgerald.
If stocks are to hold onto their gains of the last few weeks and build further on them, 'investors need to see confirmation that the economic fundamentals support the bullish case, and there's no economic report more important to investors than the jobs report', Mr Awad said.
Indeed, a lacklustre employment report for June accelerated the stock market sell-off that lasted until mid-July, as investors worried that they'd become overly optimistic about the economy's recovery.
The monthly employment report is a lagging indicator, as it looks back to what happened in the job market by more than a month, but it is considered a key piece of data especially as the economy struggles to pull out of a recession.
Why so important? Because, analysts said, the data gauges the strength of the recovery and directly impacts companies' bottom lines and earnings growth prospects over the next couple of quarters.
'The health of the job market is very closely correlated to consumer spending, which accounts for nearly 70 per cent of the economy these days,' noted Joel Naroff, president of Naroff Economic Advisors.
Most Wall Street economists share similar expectations for the July report - job losses for the economy in the range of 290,000 to 300,000 last month - but their forward-looking interpretations of what is a backward-looking data point differ markedly.
'There are signs that the declines in employment are slowing down but at negative 300,000-plus, which is the consensus for this Friday's nonfarm payroll number, we are still quite a bit away from seeing actual stabilisation in the labour market and probably at least a year away from seeing enough jobs being created to stop the unemployment rate from going higher,' observed former Merrill Lynch chief economist David Rosenberg, taking the bearish side of the argument.
'That tells me that this rally is way overbought and we are set up for a significant pullback in stock prices over the next month,' said Mr Rosenberg, now chief economist and market strategist at Gluskin Sheff.
But for Steven Weiting, Citigroup's chief US economist, a job loss number of 300,000 does not derail the bullish argument and shouldn't pull the legs out from under the rally, which has brought the major indexes back by 40 per cent or more since the March lows.
'I don't see 300,000 losses undermining the assumptions built into the current stockmarket rally. If you look at where we were in the stock market a year ago compared to now, and compare that to where the economy's gotten back to, I think the market is fairly valued and we're set up for more upside moves over the medium term,' he said.
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