New York: US stocks could start next week with investors feeling a bit more optimistic about the economy, thanks to a stronger-than-expected jobs report, making further market gains more likely.
The government's nonfarm payrolls report on Friday was the latest of the week's data to suggest the economy may not be headed for another severe downturn, as many investors have feared.
All three major US stock indexes rallied more than one per cent on Friday. The Standard & Poor's 500 Index scored a gain of 3.8 per cent for the week, marking its best week in eight, and starting September — typically the weakest month for the market — on a strong note. In contrast, for the month of August, the S&P 500 fell 4.7 per cent.
"The data forces a re-evaluation of the underlying thesis of the economy, and how the stock market is priced," said Charles Lieberman, chief investment officer of Advisors Capital Management, LLC in Hasbrouck Heights, New Jersey.
"The employment report is really the keystone. If the economy is producing jobs, the thesis of a decline in the economy goes out the window," he said.
Rally mode
Next week, the economic calendar will be light, especially since it will be a holiday-shortened week with the US stock market closed for Labour Day tomorrow.
But the agenda will include the international trade deficit data, which investors will scrutinise for clues on spending, as well as the latest weekly jobless claims numbers.
High unemployment and weak consumer spending have been among the toughest hurdles to sustaining the economy's recovery from the worst downturn since the 1930s.
Though the stock market ended last week with gains, the S&P 500 was unable to break out of a trading range of between 1,040 and 1,130, and some analysts see that range-bound trend continuing.
"I think we're in rally mode. In no way do I see us going through new highs or breaking through the trading range, but I see strength after the holiday," said Alan Lancz, president of Alan B. Lancz & Associates Inc. in Toledo, Ohio.
"We still see this as a two-steps-forward, one-step-back type market ... but we'll take what we can get."
Last week, the Dow Jones industrial average rose 2.9 per cent, while the S&P 500 advanced 3.8 per cent and the Nasdaq gained 3.7 per cent.
That's a promising start, but history shows that this month isn't one that Wall Street's denizens will "Try to Remember," a la the iconic song from "The Fantasticks" of Off-Broadway fame.
September is typically the weakest month for stock market performance, according to the Stock Trader's Almanac. The S&P 500 has declined 0.7 per cent on average during September in the years since 1950, the Almanac says.
However, on the day after Labour Day, the Dow has risen in 12 of the last 15 times, the Almanac notes.
Friday's jobs report was the catalyst for a bullish end to the week for stocks because it showed that although overall payrolls shed jobs for the month of August, the decline was much less than expected. And providing a bright spot, private payrolls rose more than expected.
Analysts said the news gave a ray of hope for the recovery. Other data this week showed an unexpected rise in the Institute for Supply Management index on US manufacturing, stronger-than-expected pending homes sales in July, and a second consecutive week of lower claims for initial jobless benefits.
Trade deficit narrows
The data means "we are probably not looking at a double dip," said Marc Pado, US market strategist at Cantor Fitzgerald & Co in San Francisco.
Next week's data includes reports on international trade on Thursday and wholesale inventories on Friday.
A surge in imports dampened growth in the second quarter.
US government data next week is expected to show the international trade deficit narrowed somewhat to $47.2 billion in July, according to economists polled by Reuters, after rising to $49.9 billion in June, the highest since October 2008.
Analysts believe sluggish domestic demand should cause a moderation in the growth of imports in coming months, while they expect US exports to strengthen. As a result, the trade gap should be less of a drag on the economy.
Initial jobless claims, also expected on Thursday, are seen dipping to a seasonally adjusted 470,000 for the week from 472,000 previously.
Wholesale inventories for July, due on Friday, are forecast to rise 0.4 per cent, the Reuters poll showed, following June's gain of just 0.1 per cent.
That report also will shed light on wholesale sales, seen up 0.3 per cent in July, following June's decline of 0.7 per cent.
