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Week Ahead: Will Jobs Report Help Street Continue Recent Strength?

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March 7, 2016

(Monday Pre-Market) This week is going to be light on new data, giving investors plenty of time to continue chewing over Friday’s jobs report, which delivered a stronger-than-expected February hiring number and helped the S&P 500 (SPX) index post its third straight week of gains.

The SPX and Dow Jones Industrial Average (DJIA) both soared to two-month highs, above 2000 and 17,000, respectively, by midday Friday as investors contemplated monthly jobs data from the Labor Department. The U.S. economy added 242,000 jobs in February, well above the 198,000 consensus forecast from a survey of economists polled by MarketWatch. The unemployment rate remained at 4.9%, as expected.

The report revealed strong hiring growth in health care, retail, and restaurants, but manufacturing jobs fell in February for the first time since September. Overall pay and hours worked both fell, giving something of a mixed feeling to the data. The 0.1% drop in wages may reflect the fact that retail played a big part in hiring, as retail jobs typically are low on the pay scale. The annual gain in wages was 2.2%, which economists consider light.

Though it’s sometimes seen as a sign of economic weakness when hiring numbers are high in the retail and restaurant sectors and not as strong elsewhere, there’s another way to look at this that paints a more positive picture about the economy. If retailers and restaurants are hiring, that could mean more Americans are eating at restaurants and shopping at retail stores, which can happen when more Americans are working and feeling more positive about their financial situations. Later this month, scheduled data on durable goods and home sales bear watching to see if Americans are indeed growing more confident. Home sales and durable goods data are due the week of March 21.

Economists don’t expect the strong jobs report to affect the Fed’s approach on rates as the Federal Open Market Committee (FOMC) meeting approaches March 15-16. Speaking after the jobs report, economists continued to predict no move by the Fed on short-term rates at that meeting, The Wall Street Journal reported. Ten-year U.S. Treasury yields rose to 1.89% at midday Friday, but that represented a relatively light gain.

From a technical perspective, the 2000 level remains key for the SPX, and the index traded both above and below 2000 on Friday.

S&P 500

FIGURE 1: ABOVE 2000 ONCE AGAIN.

The S&P 500 (SPX), plotted here through midday Friday on the TD Ameritrade thinkorswim® platform, reached the 2000 level for the first time since early January. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

What Else to Watch: It’s a light week for data, with the jobs report behind and next week’s Fed meeting ahead. Consumer credit data is scheduled for release late Monday, and wholesale inventories are due Wednesday morning. Export and import prices both are on tap for Friday. Aside from that, investors are likely to watch the usual energy market data, including crude and natural gas inventories, to get a sense of whether the recent build in U.S. oil stocks extends another week.

Oil Rises Above Technical Resistance: Front-month U.S. oil futures cruised above the $35 a barrel technical resistance level at midday Friday, helped partly by the strong U.S. February hiring number. U.S. crude output has fallen for six weeks in a row, but stockpiles reached record highs last week. The question is whether recent strong U.S. economic performance, including the jobs report, can help raise demand, bringing those bulging stockpiles lower.

Good Trading,
JJ
@TDAJJKinahan

Economic Report Calendar

FIGURE 2: THIS WEEK'S ECONOMIC REPORT CALENDAR.

Source: Briefing.com

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