Stocks flat as investors weigh jobs, chance of Fed action

 

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Stocks were mixed Friday as investors' disappointment with the August employment report clashed with their hopes of another easing from the Federal Reserve.

The employment report seemed to increase the odds of the Fed easing monetary policy again when it meets next week. In other words, bad news on jobs could be good news if it means more help from the Fed. Investors are hoping for a third round of quantitative easing, or bond buying, which would likely boost stocks.

In a closely watched report that provides a gauge of the economy's health, the government said the unemployment rate fell to 8.1%, vs. 8.3% last month. But the 96,000 non-farm jobs created last month were far feweer than the 125,000 jobs economic forecasters had expected.

The government also revised job growth downward in the two prior months. In July, the number of jobs created was reduced to 141,000 from 163,000 estimated earlier. June jobs were downgraded to 45,000 from 64,000.

The report was a disappointment to investors, but the weak job creation figure probably isn't enough to cause investors to flee stocks, says Doug Roberts, chief investment strategist for Channel Capital Research.

"It is not as much a disappointment from a market point view as it is from an economic point of view," Roberts says.

While the report could impact the November presidential election, investors are viewing the jobs number through the prism of how it might affect Federal Reserve policy, Roberts says. The stock market, he points out, has been driven sharply higher since the 2008-09 financial crisis by the massive injection of cash into the economy via the Fed's bond-buying programs.

"This will trigger a move by the Fed," says Roberts, adding that whether the market gets QE3 or some smaller incremental easing steps from the Fed remains to be seen. In any case, "markets are looking for more liquidity from the Fed."

With odds of more Fed stimulus rising, gold, which benefits when paper currencies are devalued, shot up more than $22 an ounce, or 1.3%, to $1,730.20. And the hopes of more Fed bond-buying pushed up the price on 10-year Treasuries, pushing down yields, which move in the opposite direction, to 1.62% from 1.67% Thursday.

U.S. stock indexes headed into Friday trading are at their highest levels since President Obama took office in January 2009. The indexes closed Thursday at multiyear highs and the highest levels since the 2008-09 financial crisis. So a bit of a pause in the rally would not be unexpected.

The Dow Jones industrial average closed Thursday at 13,292, its highest level since December 2007. The Standard & Poor's 500 close of 1432.12 marked its best level since January 2008. And the Nasdaq composite, which is dominated by technology stocks, closed at 3135.81, its highest close since November 2000.

Global stock exchanges continued Thursday's rally following the European Central Bank's announcement that it was creating a bond-buying plan intended to lower borrowing costs in struggling eurozone countries and stabilize Europe's economy. Those gains have held. In London, the FTSE 100 index was up 0.2%, Germany's DAX was up 0.8% and the CAC 40 index in France was up more than 1.3%.