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Job Growth or Not, December's Report is Big for Markets

The December jobs report's release at 8:30 a.m. on Friday is perhaps one of the most anticipated economic releases in months. For one, it is the first big economic report of the new year and as such, it heralds what could be the first really big trading day of the year.

Unemployment
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Unemployment

The other interesting twist for this report is it may be the first time the economy shows signs of job growth in more than two years. Just several weeks back, there were few economists who forecast a positive number, but as the report has gotten closer and more data becomes available, the consensus has risen. We've now reached the point where economists' forecasts equal a round zero—no non-farm payrolls lost or gained.

"Everybody's holding their breath for that. It should be interesting. I can't remember the last time when the number could be plus or minus," said Jack Ablin, Harris Private Bank chief investment officer. Traders expect the report to add some volatility to a market that's been fairly stagnant for the past several sessions. Ablin agrees that could be the case, and he even loaded up on the VIX, (CBOE's volatility index) ahead of it.

Traders say a positive number could give the market a psychological boost, just as a big negative number could damage psychology. They are also watching for revisions of past months.

Barclay's chief U.S. economist Dean Maki expects a positive 25,000 on non farm payrolls, and he sees unemployment steady at 10 percent. "We expect that by the second quarter, the unemployment rate will be on a firm downward trajectory...We expect it to fall to 9.1 percent by the end of 2010. In the very near term, we're expecting a sideways pattern on the unemployment rate," he said.

Maki said he expects the economy to add a significant number of jobs in the first quarter. "The service sector is typically where most of the jobs in the economy are added, and we expect that to be the case this time as well," he said.

There are those, however, who say positive or negative doesn't really matter. What are several tens of thousands of jobs when the economy has lost millions, and it could be a very long time before the high rate of unemployment eases. Some forecasters expect the December unemployment rate to rise, back to a level closer to the 10.2 percent reported in October.

"I think we're putting too much emphasis on one number," said Tim Smalls of Execution LLC. "It's short sighted to me.

Stocks again traded quietly Thursday, with the Dow up 33 at 10,606 and the S&P 500 up 4 at 1141. Nasdaq was down 1 at 2300. Treasurys were mixed, with the yield on the 10-year unchanged in the afternoon at 3.83 percent.

Smalls said the narrow moves in the stock market indices are telling investors they should be looking for individual stock and sector stories. "The focus should not be on themes now. We're going into another phase, where it's going to be a market of stocks. If my theory is right, we're going to go into a prolonged period in a narrow band," he said.

Anecdotally traders, in fact, have been more concerned with stock research than in the not too distant past. For instance, a J.P. Morgan note putting a new target on General Electric (the parent of CNBC) of $22 was in part behind the move in that stock Thursday.

Smalls pointed to Alcoa , a stock that saw a sharp move higher Wednesday. The stock moved lower Thursday, as Citigroup dropped its rating to hold from buy and held its target at $17. "It's refreshing. Citigroup comes out with a note on Alcoa, and says it met our price objective. That's the old-fashioned analyst way of doing it," he said.

Financials were the best performing sector, up 2 percent on the day. Industrials were next best , up 1.3 percent, followed by consumer discretionary stocks, up 0.9 percent.

Some retailers also moved higher Thursday after December sales reports came in better than expected for some chain stores. Thomson Reuters reported a gain of 2.9 percent for the 30 retailers it tracks, better than the 2 percent it expected. Macy's and Nordstrom were among those moving higher.

Best Buy was also higher, but it does not report sales until Friday morning, ahead of the opening bell. The company will meet with analysts after its report.

The Consumer Electronics Show continues in Las Vegas Friday.

Other data to watch includes wholesale inventories at 10 a.m. and November consumer credit at 3 p.m.

— Questions? Comments? marketinsider@cnbc.