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Market Outlook: Jobs Report to Cap a Hectic Week

The January employment report will cap a hectic week of earnings news, economic reports and Fed testimony.

AP

Throw in the European leaders summit Monday, a possible Greek debt deal and Chinese manufacturing data Wednesday, and you get a week that could shake stocks out of their doldrums—one way or the other.

Stocks in the past week were mixed with the Dow down a half percent at 12,660; the S&P 500 basically flat at 1316, and the Nasdaq, up 1 percent, as it benefitted from Apple’s sharp move higher on explosive earnings growth.

The market got a lift from Wednesday’s Fed forecast, which was for a now super-long period of extended low rates, through the end of 2014.

But gains were chiseled away by disappointing economic news, particularly Friday’s slightly lower than expected fourth quarter GDP report.

The five-year note yield fell to its third record low of the week after the GDP report added to speculation the Fed could now move ahead with another round of quantitative easing. It was yielding 0.749 percent late Friday. The 10-year was yielding 1.891 percent, its lowest level of the week.

Jobs, Jobs, Jobs

Economic reports in the coming week could be mixed, as the January jobs report Friday is likely to show lower job growth in January, with an increase of nonfarm payrolls of about 125,000 jobs.

December’s report showed 200,000 jobs were added, and the unemployment rate fell to 8.5 percent.

“There were a couple of seasonal numbers that helped last month’s jobs number that probably won’t recur this time. There was a big increase in carriers and messengers, which is probably due to the increase of online’s share of holiday shopping,” said Goldman Sachs economist Andrew Tilton.

“It had its benefit in December, and there’s payback this month,” said Tilton.

There were 42,000 courier jobs added in December. ISM manufacturing data and monthly auto sales Wednesday will also be important. Chain stores report their monthly sales on Thursday.

Fed Chairman Ben Bernanke’s testimony Thursday before the House Budget Committee will also be closely watched, as he is undoubtedly going to be asked about the Fed’s policies, its new forecasts and whether it has any plans to undertake another round of quantitative easing, or asset purchases.

Bernanke this past week said the Fed has no current plans for a new QE program, but it could carry out another easing program if the economy runs into trouble.

If there is more QE, Fed watchers believe the Fed would target the mortgage market, buying hundreds of billions of securities in an effort to keep interest rates low.

Earnings Central

Earnings reports are expected this week from more than a fifth of the S&P 500, with oil major Exxon Mobil reporting, as well as pharmaceutical heavyweights Merck and Pfizer, and a long list of others including Amazon.com, Blackstone, Aetna and MasterCard.

A bright spot midweek may be the much-anticipated filing by Facebook for an IPO.

So far, about 37 percent of the S&P 500 companies have reported, with Thomson Reuters noting that just 59 percent beat earnings estimates, well below recent the 70 percent plus in recent quarters.

This is also the first quarter of the recovery where earnings growth is single digit.

“For the year, we’re looking for a five percent earnings (growth) number, but we’re not really looking for much margin expansion,” said Wells Fargo Advisors chief equity strategist Stuart Freeman.

Freeman said he expects stocks to reflect the slower earnings growth, as well as other factors, including political uncertainty and concerns about the economy.

“I think we’ll be in a trading range for a while that’s got some volatility to it,” said Freeman.

“I think we’ll slowly see the employment numbers go up, and we’ll slowly see them go up in a breadth of industries like they have been, but not real aggressively.” “Last year, you had a lot of people worried about the second dip and the market got hit and commodities got hit.

I think this year we’re going to find we can grow at a slow pace, even if Europe is in a recession,” he said. “I think we can continue to see expansion. But unfortunately you don’t really see much multiple expansion until there’s a great deal of investor sentiment that’s favorable and consumer sentiment (rises)—just a better comfort level of taking risk in general.”

Your Money, Your Vote

Traders have become more interested in the presidential election, though many say it is not yet affecting stock prices and may not for awhile.

Florida’s Republican primary Tuesday could be a close race between former House speaker Newt Gingrich and former Massachusetts Gov. Mitt Romney, and it is getting a lot of attention.

Romney is the founder of Bain Capital and the preferred candidate of many on Wall Street, who disagree with President Obama’s policies.

Some analysts believe the market could have a negative reaction if Gingrich wins Florida, since they see Romney as the best Republican candidate to challenge President Obama.

“It’s not going to be a comfortable year. Politically we’re going to hear a lot of noise and backbiting. We’ll trudge through it as we always do,” said Freeman. “I think the market will be calmer once we see clear candidates. Although historically, the fourth year of the presidential cycle is not really a hot one.”

Some strategists say the market could rally later in the year, once the uncertainty is removed and it becomes clear who might win the election, regardless of the candidate.

While it’s early days, the Intrade predictions market shows odds on Obama to win.

Freeman expects the S&P 500 to finish the year between 1325 and 1376, and while he notes that move is not far from current levels, his target last year was 1250 to 1275. The S&P finished flat and close to dead center at 1263.

Europe European leaders meet Monday and are expected to finalize new budget oversight rules, as well as discuss strategies about ways to stimulate euro zone economies.

“We have the summit taking place on Monday and over the weekend we are expecting to get details on whatever the Greek debt deal entails,” said Brian Dolan of Forex.com.

The euro was up 2.2 percent for the week, to 1.3219 and has risen more than 4 percent in the past two weeks.

The euro has risen, in part from a short squeeze, as the markets have become calmer about progress in Europe’s handling of its debt crisis.

The LTRO liquidity facility has protected European banks and spreads have come in dramatically on Italian and Spanish bonds.

Dolan said the market is awaiting the details on the size of the “hair cut” and other details of Greece’s expected deal with private sector debt holders.

“We’re just one headline away form a move out of the euro and a stampede back into the dollar,” said Dolan.

Dolan said in addition to Europe, he is watching Chinese data.

He said manufacturing PMI data for January, released Wednesday, is expected to drop under 50, which would signal contraction.

The week marks the end of January, and there will be portfolio adjustments as a result.

“Overall, the portfolio rebalancing flows should be U.S. dollar negative across the board,” he said.

What to Watch (all times Eastern time)

Monday

EU Leaders Summit

8:30 a.m. Personal Income/spending

8:30 a.m. Core PCE prices

10:30 a.m. Dallas Fed Survey

2:00 p.m. Senior Loan officer survey Q1

Earnings: Philips Electronics, Gannett, Ryanair, Reinsurance Group of America, Enbridge Energy Partners, McKesson, Plum Creek

Tuesday

8:30 a.m. Employment cost index

9:00 a.m. S&P/Case-Shiller home prices

9:45 a.m. Chicago PMI

10:00 a.m. Consumer confidence

10:00 a.m. State Street investor confidence index

10:00 a.m. Housing vacancies

Earnings: Exxon Mobil, Honda, Lilly, UPS, Pfizer, Illinois Toolworks, Amazon.com, Aflac, Broadcom, Entergy, ADM, Danaher, Oshkosh, U.S. Steel, Tyco, Celanese

Wednesday

January vehicle sales (throughout the day)

7:30 a.m. Challenger job cuts

8:15 a.m. ADP employment

8:30 a.m. Philadelphia Fed President Charles Plosser on the economic outlook

10:00 a.m. ISM manufacturing

10:00 a.m. Construction spending

Earnings: Aetna, Whirlpool, Tupperware, Qualcomm, Chipotle Mexican Grill, JDS Uniphase, Las Vegas Sands, Allstate, Northrop Grumman, Nasdaq OMX, Marathon Oil

Thursday

8:30 a.m. Initial jobless claims

8:30 a.m. Productivity/unit labor costs

10 a.m. Fed Chairman Ben Bernanke testifies before the House Budget Committee

RBC Consumer Outlook Index

January chain store sales

4:30 p.m. Fed balance sheet

4:30 p.m. Money supply

Earnings: AstraZeneca, Merck, Royal Dutch Shell Unilever, Sony, Kellogg, MasterCard, Allergan, Viacom, Cigna, Dow Chemical, Blackstone, Tesoro, CME Group, Diamond Offshore, Pulte Group, Royal Caribbean

Friday

8:30 a.m. Employment report (January)

10:00 a.m. ISM Services

10:00 a.m. Factory orders

Earnings: Clorox, Estee Lauder, Aon, Tyson Foods, Weyerhaeuser, Simon Property

Questions? Comments? Email us at 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 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.