May's employment report will make or break the market's momentum Friday. Traders say if the 8:30 a.m. report is in line with expectations or even better-than-expected, watch for the rally to continue. If it's worse, stocks will give back some of Thursday's gains.
The street is looking for a loss of 60,000 non farm payrolls for May and an unemployment rate of 5.1 percent. All markets stand to key off this number because it will be taken as an important read on the strength of the U.S. economy.
Thursday's markets reacted to a swirl of news and some contrary forces. Stocks shot higher despite the biggest ever dollar gain in oil prices. The dollar fell, losing more than a percent against the euro, after European Central Banker Jean-Claude Trichet suggested he could raise rates to fight inflation. The dollar's tumble reversed the recent selling pattern in oil, and crude came roaring back, closing at $127.79 per barrel, up $5.49. Treasurys sold off with the 10-year yield rising to 4.027 percent.
Robert Harrington, head of block trading at UBS, says stocks were powered out of the gate by better-than-expected sales from Wal-mart and Costco and a series of headlines kept them going. In the plus column were better than expected jobless claims, Verizon's $28 billion deal for Alltel, and even Trichet's comments. He said Trichet's remarks were seen as a positive by some who thought maybe the economy may not be slowing as much as feared.
Another positive was Nucor's announcement it was raising steel prices, seen as a sign of strength for the global economy and materials. Important too was that the market was also able to overcome its fear that Lehman could face new writedowns and liquidity issues.
"It all adds up to a little sentiment change," said Harrington. "You got some reprieve on Lehman today ... maybe they're going to come out and preannounce (earnings)," he said. There was also talk that Lehman is lining up investors to put new capital into the firm. "Maybe they package that (news) together and give some transparency to combat what (David) Einhorn is saying." Einhorn, president of Greenlight Capital, appeared on "Squawk Box" Thursday and detailed his concerns about Lehman's balance sheet and why he holds a short position in the firm.
"It's almost like his story was old, and by Lehman saying nothing, it probably helped their case today. That's a volatile situation. It's hard to know," said Harrington.
Tim Smalls of Execution LLC said there's a growing sense that Lehman is not like Bear Stearns and that "took a lot of sting out of the market." Smalls said some of the lift in Thursday's market had to do with the feeling that Friday's jobs report might not be that bad. "The market is taking us down that path," he said.
"The economic data shows that things aren't good, but not horrible..We had the jobless numbers that were okay," he said. He also pointed to the surprising gain in ADP's private sector jobs report Wednesday. It showed a 40,000 increase in jobs while a 30,000 decrease was expected. The ADP number is watched by traders but is not necessarily viewed as a reliable indicator for government jobs data.
The Dow Thursday gained 213 points or 1.7 percent to 12,604, while the Nasdaq jumped 26 points or 1.9 percent. The S&P was 26 points higher at 1404. The biggest winners were energy, up 4.39 percent and materials, up 3.43 percent.
Other data expected Friday includes wholesale inventories at 10 a.m. and consumer credit for April at 3 p.m. A few Fed speakers are also out, including Fed Governor Randall Kroszner who speaks on financial market developments and credit conditions at 8:45 a.m.. Chicago Fed President Charles Evans speaks at a Fed conference on payments fraud at 11:15, and St. Louis Fed President James Bullard speaks on housing at 12:30 p.m.
Wal-mart holds its annual meeting in Bentonville, Ark. at 9 a.m., and Freddie Mac holds its annual meeting in McLean, Va. at the same time.
Technology stocks, good performers last month, continue to attract buying interest. Harrington says some investors are feeling underweighted in the group and that helped spur buying interest Thursday.
Scott Redler, a market technician with T3 Capital, says he sees some important signals in the charts of some of the major tech names. "Basically, big cap tech looks good right now," he said. Of course, other fundamental factors could affect these trends, and there's no guarantee they will perform as expected.