After a sparkling performance yesterday the Dow soared more than 300 points US stocks are poised for a pullback at open today as investors exercise caution ahead a key jobs report.
Midday futures were indicating that the Dow Jones will open 49 points lower at 17,858, with the S&P off four points at 2,058. Nasdaq is seen kicking off six points lower at 4,234.
Jasper Lawler says investor wariness today reflects unease over jobs data for December, the worry being that a repeat performance of the strong non-farm payrolls seen last month (for November) may push the Fed closer to a rate rise.
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US employers added 321,000 jobs in November more than forecast. For December, the expectation is that the US economy created 236,000, with economists polled by CNN predicting the unemployment rate will fall to 5.7% in December, from 5.8% in November.
So far, 2014 is shaping up to have been the strongest year for job growth since 1999.
Lawler notes that the huge leap in the US job growth for November preceded a nearly 900 point drop in the Dow in the days following the release of the data, with investors worried it would hasten a rate increase: "Given the crash after last month's number, another 300,000 plus number for non-farm payrolls poses a substantial risk for stocks."
Lawler says a good part of the reason for the huge rally seen in stocks yesterday was due to relief that the Federal Reserve has not matched the stronger unemployment data with a significantly more hawkish bias in its monetary policy. With the Fed willing to stay put on rates while oil prices hold down inflation, stronger labour market data does not necessarily imply a tightening sooner than consensus, he believes.
"Chances are probably fairly low that December's unemployment report is on par with the giant leap of 321,000 in November but anything in and around the 241,000 expected should be well received by markets."
With the Fed apparently looking past the strong job gains and 5.8% unemployment rate, Lawler reckons wage growth may be the more widely watched component. He notes that average hourly earnings grew at a 0.4% in November and expectations are for a tempering of that pace to 0.2% in December.
In pre-market trade today, US listed shares of Infosys, India's second-largest software services exporter, stood out, jumping 5.1% to $33.73 after it beat third quarter forecasts and kept its sales growth outlook for the year unchanged.
