October's Jobs Report in Focus

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The major indexes are on track to start today's modestly in the green ahead of the October jobs report tomorrow and a day after the Fed-inspired sell-off. Wednesday's pullback notwithstanding, the indexes have pretty much recouped all of their late-summer losses over past month, with the evolving Fed outlook as the only source of potential trouble over the coming days.

The jobs report is always a big deal for the market. But its significance has increased even more this time around, given growing hints from the Fed that they would really like to get going with the lift-off at the mid-December FOMC meeting should data continue to show modest economic growth in the U.S. economy. Janet Yellen said as much in her Congressional testimony on Wednesday as well, which was in effect a reiteration of their official position from the last FOMC meeting when they left the door open for a December rate hike. Recent data has started showing improvement in the economy's underlying momentum following the late-summer slump, as we saw with the October ADP jobs reading and the service-sector ISM survey.

We will see what tomorrow's non-farm payroll report brings, but an in-line or better October and positive revisions to the prior two months' numbers will materially increase the December lift-off odds. The Fed Funds future contract on the Chicago Mercantile Exchange is currently showing the odds of December lift-off at 60%, which was at 52% prior to Chairwoman Yellen's Wednesday comments and only 38% prior to the October 28 FOMC meeting. It appears that the Fed has come to realization that the modest down-tick in the labor market this year is largely a function of issues in the Energy and the manufacturing sectors, with the broader economy largely chugging along.

The Energy drag has been particularly notable in corporate earnings, with the sector's weak year-over-year comparisons pushing the growth pace for the S&P 500 index in the ongoing Q3 earnings season - the second back-to-back earnings season of negative earnings growth for the index. Total earnings for the 428 S&P 500 companies that have reported results already, includes all of this morning's reports from the likes of Ralph Lauren ( RL ), Molson Coors ( TAP ) and others, are down -2.5% from the same period last year on -4.8% lower revenues, with 69.2% beating EPS estimates and only 40.2% beating revenue estimates.

As we have been pointing out repeatedly in this space, this is weaker performance than we have seen from the same group of 428 index members in other recent periods. But the aggregate growth picture improves notably once the Energy sector is removed from the numbers. Total Q3 earnings for the S&P 500 index would be up +4.3% on +1.1% higher revenues on an ex-Energy basis.

It appears that market bulls are looking at this ex-Energy earnings picture in pushing stocks higher. The Fed would be doing the same in its reading of the U.S. economy if it decides to go for a December lift-off.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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