Wall Street rallied on Monday to close higher, shrugging off Friday’s weaker-than-expected employment report for August, as U.S. stocks were lifted after better-than-forecast economic data out of China and Japan.
The latest jobs report comes ahead of the Federal Reserve’s highly anticipated policy meeting next week on Sept. 17-18, where the Federal Open Market Committee (FOMC) will debate when to taper the central bank’s $85 billion-a-month bond-buying program.
“You’ve got a couple of dynamics going on,” said Alan Valdes, vice president of trading at DME Securities, from the floor of the New York Stock Exchange. “You’ve got Bernanke who’s retiring. So he’s got this legacy issue. So a lot of traders I talk to think he’s going to want to start tapering just for his legacy. So you may see a taper of $5 billion, maybe $10 billion, but you’re not going to see the $60 billion that we originally had heard.”
The Labor Department said on Friday employment growth in the U.S. was weaker-than-expected in August, with nonfarm payrolls increasing 169,000 in August, compared with expected job gains of 180,000 last month, according to economists polled by Reuters. The unemployment rate ticked down to 7.3 percent in August, compared with 7.4 percent in July.
Although the U.S. unemployment rate slightly fell, the labor force participation rate dropped to 63.2 percent, its worst reading in 35 years.
“At the same time, you mention that jobs number, very disappointing jobs number," Valdes said. "Even though it ticked down to 7.3 percent, down a tenth of a percent, that’s because 300,000 people left the market. We have 800,000 new part-time jobs created this year, as opposed to 80,000 full-time jobs. So it’s really not a good jobs number no matter how you cut it; but, I think you’re going to see some movement only because the market expects something now because, as we mentioned earlier in the segment, world markets and the U.S. are doing much better.”
Global markets turned volatile in late May after Fed Chairman Ben Bernanke hinted the U.S. central bank may taper its quantitative easing program in the near future. Bernanke testified to Congress during the Federal Reserve's semi-annual monetary policy report in July, and said the U.S. central bank still expects to start scaling back its asset purchase program later this year. However, Bernanke added the central bank is ready to continue or shrink stimulus based on U.S. economic data.
"We intend to be very responsive to incoming data, both in terms of our asset purchases - but it's also important to understand that our overall policy, including our rate policy, is going to remain highly accommodative," Bernanke said during semi-annual monetary policy testimony in July.
Bernanke’s testimony this past summer could be his last if he steps down when his term expires in January 2014.
“It might be years before we get back to what we consider normal, below 5 percent. It may be literally years," said Valdes. "But I think, overall, the Feds have to start tapering and I think you’ll see a small, what we’re calling a ‘taper light.’ I think you’ll see maybe 5 billion maybe 10 billion at the most, but probably 5 billion.”
On the economic calendar, economists are looking to Friday’s U.S. retail sales data for the month of August. Retail sales are expected to rise by 0.4 percent in August, compared with the 0.2 percent gain in July, according to analysts polled by Reuters. Core retail sales, excluding autos, gasoline and building materials, are expected to rise by 0.3 percent, compared with July’s pace of 0.5 percent.
“Remember a couple of weeks ago we got those quarterly numbers from Wal-Mart and Kohl’s, very disappointing. The guidance was very disappointing. So back to school is critical,” said Valdes.
Data last week revealed auto sales in the U.S. rose 17 percent in August to a seasonally adjusted annual rate of 16.1 million units, the fastest pace since October 2007.
“If you saw the car sales and the car numbers in the auto industry, they were great; but, what happens is a lot of people now lease. They don’t buy, they lease," said Valdes. "So they’re payments are $300, $400 a month. That takes a lot of discretionary money that went to say Kohl’s or Wal-Mart out of that area and into autos. So we’re going to find out really how much of a bite that’s taken out.”
On Monday, U.S. stocks rallied despite worries about potential U.S. military strikes in Syria.
“Right now the market’s telling us that we’re not going to go to war. It seems congress has a hold on it,” said Valdes. “I think it’s over. I don’t think we’re going to do anything. I think unfortunately the president has painted himself in a corner, and he’s going to have a hard time getting out of it."
The Dow Jones industrial average climbed 140.31 points or 0.94 percent, to close at 15,062.81. The S&P 500 gained 16.52 points or 1 percent, to end at 1,671.69. The Nasdaq Composite added 46.17 points or 1.26 percent, to finish at 3,706.18.