Stocks held pretty tight on Thursday as traders prepared for the release of the August payroll report on Friday morning ahead of the long Labor Day holiday weekend. Some attention was paid to a policy announcement and press conference by European Central Bank chief Mario Draghi, who reiterated that more stimulus could be unleashed if needed, which boosted eurozone shares.
However, the U.S. session drifted lower into the closing bell on a slide in crude oil.
In the end, the Dow Jones Industrial Average gained 0.1%, the S&P 500 gained 0.1%, the Nasdaq Composite lost 0.4%, and the Russell 2000 lost 0.1%.
The tone of trading was defensive — telecom stocks led the way with a 0.8% gain, followed by consumer staples, which added 0.7%. After the close, Gap (GPS) announced a smaller-than-expected drop in monthly comp-store sales — down 2% vs. the 4% drop anticipated — thanks to a 6% rise in its Old Navy stores. Its core Gap brand suffered an 8% drop while its high-end Banana Republic label fell 11%.
In case you didn’t know, Friday’s update on the health of the jobs market is being non-sarcastically billed as one of the most important events of all time because of its influence on the Federal Reserve’s “hike/no hike” decision on September 17 — one that could potentially result in the first policy tightening since 2006.
Economists are looking for payrolls to expand by 223,000 for the month, up from the 215,000 created in July, with the unemployment rate falling to 5.2%. Ed Yardeni of Yardeni Research thinks a positive surprise is in store, including a possible drop in the unemployment rate below 5%.
If so, the Fed will likely lift rates at its September 17 policy announcement — leaving Fed chairman Janet Yellen with the unenviable task of spending her press conference assuring markets that another rate hike may not happen for a while.
The team at Deutsche Bank holds the opposite conviction; bracing for disappointment given August employment has missed expectations in 21 out of the last 27 years. For those without a calculator handy, that’s a 78% miss rate. If history repeats itself, Deutsche Bank thinks the market will question the Fed’s rate-hike resolve, pricing in a continuation of the emergency 0% interest rate policy that has been in place since December 2008.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
