Wall Street Waits For Data

data-stick-menFinancial markets took a little time-out this week ahead of some key economic news. On Thursday, U.S. government economists will release their advance estimate for third-quarter economic growth. Friday will bring the Labor Department’s monthly employment report covering the month of October.

Federal agencies issue some kind of new data almost every day. Each report is just a snapshot in time. The numbers don’t mean much unless you look at their trends over months or years. The two reports due out this week are a little more important than normal. Today I’ll explain why.

As Kenny reported last week, the Federal Reserve decided at its October meeting to once again postpone the “taper” plan and continue its QE3 economic stimulus program. Economic analysts now think the Fed will wait until at least March 2014 to begin tapering. The data we will see tomorrow and Friday is important to the Fed – which means it is also important to Wall Street.

The market is currently in a “good news is bad news” mood. Stocks and other risk-based assets are rising in part because of the Fed’s loose-money policy. Signs of economic weakness increase the odds the Fed will further postpone the taper plan. That’s why weak data could actually be short-term bullish for stocks. In the end, of course, we all want to see a strong economy in which people have good jobs and spend more money.

So what would count as “strong” or “weak” in these reports? Both releases will be full of fine print, but here is a brief explanation of what to expect.

Thursday’s news will be the third quarter advance Gross Domestic Product or GDP report. This report will not show any effects of the government shutdown since it covers only the July-September period, but the fourth quarter GDP report could feel the impact.

For now, Wall Street’s economists expect to see 2.0% annualized economic growth in the third quarter. Reaction should be minimal if the actual report confirms this. A surprise in either direction could spark volatility.

Friday’s employment report is probably more important than GDP this time. In addition to the influence on Federal Reserve policy, this will be the first report to show the impact of last month’s government shutdown. The report will include two key numbers.

First, it will show the monthly change in non-farm payrolls – essentially how many workers employers hired or fired in October. The average estimate is +120,000. The range of guesses is very wide, from as low as -300,000 up to +168,000.

The second headline number in the jobs report will be the unemployment rate. The average estimate is that unemployment rose slightly from 7.2% in September to 7.3% in October.

The agencies that produce these reports are themselves recovering from the government shutdown. No one is quite sure how reliable the data will be, which creates even more uncertainty.

We continue to think the economy is slowly but surely recovering. If data over the next few months confirms this view, the Fed will start tapering QE3 sometime next spring. At Republic Wealth, we watch all these trends as we manage our client portfolios. We see no reason to change course – but we always stay flexible.

Disclosure: This commentary is presented only to provide general information on our company and our investment strategies. The material contains the current opinion of Republic Wealth Advisors (KCM) as of the date of creation which are subject to change without notice. The information contained herein does not constitutes an offer to sell (nor the solicitation of an offer to buy) any security. Statements concerning financial market trends are based on current market conditions which will fluctuate. Past performance is not indicative of future results.

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