Stocks will take their cue from the jobs report Friday, but it's the news from Washington that could once more drive the market.
Economists expect a drop in non-farm payrolls of 525,000 and an unemployment rate of 7.5 percent when the January employment report is released at 8:30 a.m. No other piece of news has been so anticipated by markets this week, with the exception of developments with the $800 billion plus fiscal stimulus plan being considered by the Senate and the Obama Administration's efforts to reshape the bank bailout.
At the same time, traders, who had been expecting key market indices to retest November lows, have instead been watching a stealth rally in some corners of the market and are wondering if stocks are about to turn. There is a clear willingness by investors this week to dip into some of the less defensive sectors. The S&P technology sector, for example, is up 6 percent on the week, and buyers were back in commodities names, like Potash.
Jobs, Jobs, Jobs
Citigroup economists expect a decline in non-farm payrolls of 450,000 and an unemployment rate of 7.5 percent for January. Robert DiClemente, head of U.S. economic research at Citi, explained that the number will be influenced by seasonal factors and may not portray the depth of the employment issues apparent in last month's number, or probably in next month's. "Employers are reeling and there's a very wide range of expectations associated with any of these numbers," he said.
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DiClemente expects unemployment to peak at 9.3 percent in the first quarter of next year. "That's net of policy efforts, which without, we'd be well above 10 percent or more," he said.
"At this point what you look for is signs that there's some abatement in the rate of decline, that the intensity that we saw, particularly after Lehman, is abating. There are some signs of that, but as you know, what's been staggering so much in these past few months is while firms have been moving in lock step with the consumer pull back, they haven't been able to keep pace," he said.
"Producers just weren't able to slow output as quickly as demand has been falling even though adjustments by firms were monumental," DiClemente said. As a result, GDP could be very weak in the current quarter even if demand improves.
In Thursday's market, it was the drip of gossip and speculation about the Treasury's plan for the bank bailout that helped send stocks higher. Bank stocks rose on speculation that changes could be made to the accounting standard affecting the troubled assets on banks' books.
The story seems to have gained some momentum after Sen. Christopher Dodd, D-Conn. told journalists Wednesday night that it might be possible to modify the mark-to-market accounting rules for banks facing write downs without totally abandoning the rule. Also, traders circulated a report by CNBC.com, quoting a source who said the Obama Administration may push a temporary suspension of accounting rules. The Treasury is expected to unveil its plan for banks and the rest of the Troubled Asset Relief Program (TARP) Monday.
The Dow rose 106, or 1.3 percent Thursday to 8063, while the S&P 500 rose 13, or 1.6 percent to 845, and the Nasdaq was up 31, or 2 percent to 1546. The best performing sector was energy, up 2.7 percent as oil moved higher. Materials followed, up 2.6 percent, followed by technology, up 2.2 percent. Financials finished 1.4 percent higher.
"The interesting thing is the S and P got up to 851-852. That was the high yesterday, and the day before it reached that. Three times in three days, the rallies got winded when they got to that level, so we have to see what they do from here," said Art Cashin, UBS director of floor operations.
Stocks in the News
Companies reporting earnings Friday include Aon , Biogen Idec and Weyerhaeuser . News Corp shares fell sharply in late trading Thursday, after it reported its biggest loss ever. The media company took an $8.4 billion writedown for the value of its Dow Jones acquisition, broadcast licenses and other assets, giving it a net loss of $6.4 billion for its second fiscal quarter.
On Thursday, Bank of America finished up 3 percent, after trading sharply lower in the morning. The stock benefited from market speculation about the accounting change. Bank of America executives also reported they were buying shares in the company. CEO Ken Lewis will appear on CNBC Friday at 11:15 a.m.
CNBC's Mike Huckman interviews Roche CEO Severin Schwan on "Squawk Box." Roche launched a hostile bid for Genentech last week.
One stock that did not participate in Thursday's rally was General Electric , which fell to a 14-year low below $11. GE CEO Jeff Immelt spoke to a Wall Street Journal breakfast Thursday and said the economy is in its worst shape since the recession of 1974 to 1975. Any further decline, would make the most meaningful comparison the Great Depression, he said. GE owns NBC Universal, the parent of CNBC.