Friday brings us the jobs' report. The market seems to have been waiting for this event for a few days. The market thinks that the Fed pays a lot of attention to this data point, so they are hoping for a Goldilocks' number. They want a number that is just right, not too big as to delay, we stress "delay", a rate cut to later meeting. They have no reason to believe the Fed is done, far from it.
The market thinks the Fed needs to lower rates and lower rates they will, just for them. The number can't be too small because then the market might have to convince itself that the economy will be ok and they don't want to have to deal with that. Of course there are the revisions that could help the market out, too. If September's number is low but the August number is revised up to compensate, then there could be a Goldilocks' number. All of this with the Dow within an hours' trading to a new all time high. This thinking is so flawed by normal standards but we have seen the Fed act in the past couple of months. We know what they are capable of and so does the market.
Let's get to what we think on this fine Thursday evening in October. First, the market may get what it wants on the jobs' number and the Fed's rate decrease. We don't really argue with the weakness in the economy. We argue that the market is over valued with respect to the state of the economy. Second, we almost expect the number to be a Goldilocks' number giving the market a decent chance to punch up in the early going. This result corresponds to the current pattern in the market, another push up could be a nice bow on the market.
Third, it's a little early to be predicting the Fed's move this month but we do think the market holds a good chance to pop in the morning (regardless of the number) and then a fall off after that. The jobs' report certainly has been the stage for such turn arounds in the past. That is one of the key reasons we pay so much attention to it.
Other observations would be that there has been some interestingly bullish comments on the internet these days. One we noticed indicated that there wouldn't be enough toys available for holiday shopping. Does this make you believe there's a lot of shopping going on with the Wal-Mart price reductions this month? There are comments that Wal-Mart had trouble last December because it had run out of product.
Another thing we noticed was the talk about the apparent loosening going on in the credit markets. The biggest noise on this subject came from former Fed Chairman Greenspan but we have started to hear it from other sources, as well.
These are the type of stories that seem to be designed to calm the public down. There is obviously some plausibility in the stories which gives them credibility.
In closing, we want to say that the job of predicting the number of jobs in tomorrow's report is a tough one. The number is about 100K and the WSJ has 110K. These are big numbers and give the actual a good chance to come in under them giving the market its Goldilocks' number. Since the number comes out an hour before the market opens, there is ample opportunity for the market to pump itself up--or down.
Some of the items we read suggest that the September number is less manipulated than other months due to the lower birth/death additions but August has the history of having the largest adjustments to it. Lots of possibilities on Friday but our guess is Up early and then Down. What else could we say?