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Record High Stocks Likely to be Impacted by U.S. Jobs data

Record High Stocks Likely to be Impacted by U.S. Jobs data
Crested by payrolls data on Friday that could sway expectations about the timing of future interest rate hikes and spark volatility in record-high stock prices, Wall Street will fixate on a wave of U.S. economic data next week.
Investors could be helped in lending weight to a minority of strategists predicting a rate rise as early as next month or solidifying expectations for a December interest rate hike from the U.S. Federal Reserve by fresh data about employment and consumer confidence.
While leaving open the timing of what would be the first rate increase since December 2015, Fed Chair Janet Yellen said the case for a rate hike is strengthening.
"She did put the market on notice that she'd like to raise rates, which means the payrolls data out on Friday is very important. The wage component, length of the workweek and types of jobs, all are crucial in order to extrapolate to inflation,” said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.
Up from just above 50 percent on Thursday, investors see roughly a 60 percent chance of a December hike for prices for fed funds futures implied by Yellen's speech. Up from 21 percent, investors see chances of a September hike at 36 percent, up from 21 percent.
Even as the economy expands at a lukewarm rate and U.S. largecaps struggle with over a year of declining earnings, almost a decade of ultra-low interest rates has helped propel stock prices to record highs.

A recent trend of investors selling high-dividend payers like utilities and telecoms and opting for sectors tied to economic expansion like financials and industrials would likely continue due to expectations for higher interest rates.
Yellen said in her speech at a symposium in Jackson Hole, Wyoming that the Fed expects the economy to continue expanding and pointed to a recent rebound in employment thereby underscoring the importance of the upcoming jobs report.
"Chairwoman Yellen put a magnifying glass on next Friday’s jobs report. That really I do believe is going to be a determining factor of the market’s direction for its next leg," said David Schiegoleit, managing director at U.S. Bank Private Client Reserve in Los Angeles.
According to a Reuters poll, after rising by 255,000 in July, it is expected that the U.S. economy would record the creation of 180,000 jobs this month in the August jobs report.

The forecast is for the unemployment rate to dip one-tenth of a percentage point to 4.8 percent. Personal consumption on Monday, consumer confidence on Tuesday, and car sales and factory activity on Thursday are the other data in investors' crosshairs next week.
While being just 1 percent below its record high set earlier this month,  the S&P 500 saw a fall on Friday for the fifth time in six sessions.
"Any potential strength in consumer and jobs data could be very helpful to support equity prices where they are right now," said Jon Adams, senior investment strategist at BMO Global Asset Management in Chicago.


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Christopher J. Mitchell

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