Stock ETFs Look to Jobs Report

September 4th at 11:45am by Tom Lydon

U.S. equities and stock exchange traded funds are off to a modest start in September ahead of the critical August jobs report, which crosses Friday. The employment data could influence the Federal Reserve’s decision whether to begin tapering at its policy meeting later this month.

After the extended Labor Day weekend, the SPDR S&P 500 (NYSEArca: SPY) gained 0.5% Tuesday, PowerShares Nasdaq 100 (NasdaqGM: QQQ) was 0.6% higher and SPDR Dow Jones Industrial Average (NYSEArca: DIA) was up 0.2%. Year-to-date, SPY is up 16.0%, QQQ is up 16.5% and DIA is up 15.0%.

On Thursday, the markets will be waiting for the weekly jobless claims. In the week ended August 24, claims fell 6,000. The data reveals the number of individuals who filed for unemployment insurance for the first time. A rising trend suggests a weakening labor market.

Also this week, investors will watch for the August nonfarm payroll employment data Friday. Employment numbers came in lower-than-expected in July, rising 162,000. The employment rate in July was 7.4%.

“Friday’s jobs report will be very important,” Jerry Webman, chief economist at Oppenheimer Funds, said in an International Business Times article. “If it is an extremely low number, five digits rather than six, I think they [the Fed] would have to come back and say … ‘we would expect to taper later than what we had been signaling the market.’ Right now, the most likely course is for them [FOMC members] to do what they said they are going to do and begin to ease off the asset purchases in September.”

The Federal Reserve has stated that it will maintain its quantitative easing program if the unemployment rate remains above 7.0% and hike interest rates if unemployment falls below 6.5%.

The central bank will reveal its strategy Wednesday, September 18, following a two-day meeting. Fed chief Ben Bernanke will also hold a press conference after the announcement.

The August employment report “represents the last potential roadblock to the Federal Reserve’s plans to announce reduced bond purchases,” said David Kelly, chief global strategist at J.P. Morgan Funds, in a weekly outlook.

“Our models tell us that the economy may have added almost 200,000 jobs in August with the unemployment rate slipping to 7.3%,” he wrote. “However, in light of last week’s upward revision to second quarter GDP, a number of 150,000+ on payrolls and 7.4% on unemployment would probably be enough to keep the Fed on track to begin a wind down to QE, with an announcement likely coming in a press release and Bernanke news conference following the September 17th/18th FOMC meeting.”

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Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.