Top Line: You may have noticed that the Dow managed to stay afloat on Thursday, above 13,000. But, the market is definitely trading heavy even in this normally bullish period. There certainly seems to be no fear in trading even though prices are not bouncing off the natural round number support area. If the market decides to drop, the pattern allows for a large drop. We shouldn't get ahead of the market, though our target is at least a test of the 12,500 area in the Dow.
There are so many things going on over the last few days, we hope you have been able to keep up with them on your own. We are focused on the jobs' report due out on Friday morning, probably before most of you get a chance to read this post. On Thursday the ADP employment report revealed a lower number of jobs last month than the month before. ADP said that the nonfarm employment rose by 40K, which doesn't include government workers estimated at an additional 19K, for a total of 59K. The estimates for the Friday jobs' report is for 70K new jobs to have been created. The ADP report has not been widely accepted as a substitute or even a real predictor of the BLS number coming out on Friday morning. The BLS purports to cover all of the jobs while ADP can really only extrapolate from their actual payroll numbers. Anyway, last month the ADP number estimated about 189K new jobs the day before the BLS announced 94K. We aren't going to read anything into those numbers.
What we are going to do, however, is to talk about possible stock market reactions to the number. The market seems worried about the economy, especially when it saw the ISM manufacturing number on Wednesday, allayed by the Fed's minutes indicating lower rates were almost certain. If the jobs' number is weak, there could be a cheer from that same crowd but remember that the rally from Wednesday was not very strong and looking back now seems imperceptible. It is possible that a weak jobs' number will confirm the markets' jitters about the economy. A number that is also coming out on Friday is the ISM non-manufacturing number which could be a counterbalance.
If the jobs' number is strong the market could decide that it is a better thing than the possibility of the Fed lowering rates. We see that the articles being written over the past few weeks are being much less positive about the Fed's ability to rectify the mortgage issues. (The link is to a WSJ opinion from the Thursday edition. If you can't read it, you can find a copy of the Journal to read it.)
Our hope is to provide a little 2007 recap along with a 2008 preview from the Updates perspective over the weekend. We would appreciate any comments before that time about your thoughts on the upcoming year in the markets. As a preview we think there will be plenty of opportunities in 2008 but the timing will be tricky. See you then.