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It's All About the Jobs Report

It's all about the jobs report Friday. Nothing else will matter.

The talk in markets all week has been mostly about that number, and the stock market's punkish, sideways behavior Thursday reflects that uncertainty. The Dow rose just 6 points to 13,974. Nasdaq rose 5 to 2733 and S&P 500 was up 3 to 1542.

Traders are watching the 8:30 a.m. report because they believe it is the single most important data point the Federal Reserve will consider before it makes its rate decision Oct. 31. Economists surveyed by Reuters forecast a median of 100,000 jobs created in the month of September.

That estimate compares with the Labor Department's dismal report that 4,000 jobs were lost in August. That number was quite a shocker at the time, and I remember it convinced me that the doomsayers predicting the Fed would have to make a deep, 1/2-point rate cut to stop a recession might just be right.

Of course, I read that report with the special clarity of someone hundreds of miles away from Wall Street. I was standing on a cliff in Maine at the time, reading bulletins on my Blackberry. Somehow, I suspect the reaction to the September number might be more difficult to determine.

Things are far different now. We're no longer in the thick of the credit crisis. We've seen definite improvement, and there's a feeling that there's light at the end of a hellish tunnel. The markets have relaxed, and stocks set a new record.

We've all heard the forecasts. A weak number will be taken as a sign the Fed will cut again. A very weak number could raise the forecasts for a recession. A strong number will have the markets rethinking the expectation for a rate cut and the markets will adjust to that. A so-so number -- well, that's what some hope for, because it means the Fed is on top of things and another cut could be coming.

No Bull from Bear -- But What About Merrill?

Despite more optimism in the financial markets, Wall Street just can't stop scaring itself.

Major banks this week opened the door on the types of writedowns they'll take from the credit crisis. That sent stocks flying Monday and has surrounded the brokers with a sense of optimism that the worst is out there. That is, until two Merrill Lynchexecutives "left" the firm amid speculation Merrill will take a big hit in fixed income and lay off as much as 15% of the department's staff. Merrill didn't help those rumors by withholding comment.

Bear Stearns, bruised by the collapse of two hedge funds and mortgage losses, held an investor day that was mostly perceived as positive. Bear Stearns CEO James Cayne said the firm would welcome the right investor to take a stake in the firm but was not seeking an infusion (read that as a necessary life line). Speculation has surrounded the firm for weeks, ranging from rumors it would be sold or that it needed an investor to give it a capital infusion.

Federal prosecutors have launched a criminal investigation into two Bear Stearns mortgage-related hedge funds that collapsed during the summer, according to people familiar with the matter. The U.S. Attorney in Brooklyn has made a request to Bear Stearns for information related to the hedge funds, whose failure cost investors $1.6 billion, those people said. The probe is in the early stages, the people added, and has not generated subpoenas.

In the bond markets, CNBC's Rick Santelli says Merrill certainly has become the new poster child and the rumored work force reduction is a sign of the times.

"They're going to probably set the tune for what will be the trend. The firms will need fewer employees to handle the credit markets in the new world order once the markets right themselves," he said.

Goldilocks 2.0

That's what Larry Kudlow calls it. It's the return to an economy with just right growth, low inflation and nothing too hot (or too cold). Kudlow says "no recession." He expects a soft landing, "Bear Stearns' (President) Alan Schwartz said the credit crunch is over," he said.

"We're not going to see 3% growth, not 4% growth, but it is 2% growth for the next couple quarters," he said, adding that those numbers aren't that bad.

Questions? Comments? marketinsider@cnbc.com

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC's Senior Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.