MarketView for January 10

Summary

The S&P 500 and the Nasdaq indexes ended modestly higher on Friday, after a weaker-than-expected payrolls report raised new questions about both the strength of the economy and the aggressiveness of Federal Reserve stimulus. The Labor Department data indicated that only 74,000 workers were hired last month, the smallest increase since January 2011, and significantly below the 196,000 consensus estimate.

While the jobs report did not coincide with the positive trend of recent employment data - including the ADP report and jobless claims - the setback was expected to be temporary amid signs that the number of hires may have been affected by cold weather.

For the week, the S&P 500 rose 0.6 percent, while the Nasdaq was up 1 percent. The Dow Jones Industrial Average finished the week down 0.2 percent.

Homebuilding stocks rose as the much weaker-than-expected payrolls report drove the yield of the benchmark 10-year U.S. Treasury note sharply lower. Shares of Lennar gained 2 percent to close at $39.19. The shares of D.R. Horton ended the day up 1.8 percent to close at $22.15.

With the earnings season under way, shares of Alcoa fell 5.4 percent to $10.11 a day after the company reported a massive quarterly loss. Alcoa's results were hurt by recent declines in aluminum prices and a non-cash impairment charge on smelter acquisitions. The pace of companies reporting earnings is expected to pick up in the following week, when a number of banks report their quarterly and full-year results.

Only 5 percent of S&P 500 components have reported earnings so far, with half of them posting better-than-expected profits and 62.5 percent topping revenue forecasts. Historically, 63 percent exceed earnings estimates, while 61 percent exceed revenue estimates.

Sears Holdings fell 13.8 percent to close at $36.71, a day after the retailer reported sharp declines in comparable-store sales at its Kmart stores and its namesake Sears chain during the crucial holiday season.

Target has now said that the massive payment-card data breach that occurred during the first three weeks of the holiday shopping season affected at least 70 million people, more than double its previous estimate. Its shares ended the day down 1.1 percent to close at $62.62.

Approximately 6.5 billion shares changed hands on the three major equity exchanges, slightly above the 6.4 billion shares that have traded on average so far this month, according to data from BATS Global Markets.

Jobs Report Disappoints

Employers hired the fewest workers in almost three years during December, although the setback was likely to be temporary amid signs that cold weather conditions might have had an impact.

The Labor Department reported on Friday that nonfarm payrolls increased by only 74,000 new workers last month, the smallest gain since January 2011. At the same time, the unemployment rate fell by 0.3 percent to 6.7 percent,. The unemployment rate was the lowest since October 2008 and in part reflected people leaving the labor force.

The step back in hiring is at odds with other employment indicators that have painted an upbeat picture of the jobs market. The data showed that 38,000 more jobs were added in November than previously reported.

Construction employment fell for the first time since May and leisure and hospitality payrolls increased only marginally, suggesting that cold weather in some parts of the country had held back hiring. There were also declines in government employment. The smaller survey of households showed an increase in the number of people who stayed at home because of the bad weather. Government payrolls fell by 13,000 workers after rising by 15,000 in November.

Manufacturing employment rose for a fifth straight month. The number of construction jobs fell by 16,000 workers. Employment in the retail sector accelerated from November's seven-month low, which had been attributed to a late Thanksgiving. There were also payroll gains in professional and business services.

Average hourly earnings rose two cents. The length of the workweek fell to 34.4 hours from 34.5 hours. The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one fell 0.2 percentage point to 62.8 percent.

President Obama Moves to Fill Fed Slots

Friday saw President Barack Obama nominate former Bank of Israel Governor Stanley Fischer to be vice chairman of the Federal Reserve, and tapped two others to round out the Fed's top ranks just as it begins winding down its historic economic stimulus.

Fischer, an experienced crisis manager and one of the world's most prominent economists, would succeed Janet Yellen, who is set to take the Fed's helm when Chairman Ben Bernanke's term expires at the end of this month.

Obama also nominated Lael Brainard, who recently was the Treasury's top official for international affairs, to serve on the Fed board, and re-nominated Fed Governor Jerome Powell, whose current term ends on January 31. All three need to be confirmed by the Senate.

The two new voices at the Fed's table are unlikely to alter the policy consensus as the central bank scales backs it aggressive bond-buying campaign. While Brainard, is seen as inclined to be particularly focused on fostering faster jobs growth, Fischer, whose post as second-in-command will make him more influential, is seen as a centrist.

However, Fischer is also known for a willingness to do what he thinks best, regardless of economic rules or market expectations. As head of Israel's central bank, he often surprised investors with his interest rate decisions. As a result, there is some concern over possible tensions between Yellen and the strong-willed Fischer if differences of opinion should arise.

Laura Tyson, a professor at University of California, Berkeley, who is close to Yellen, downplayed those concerns. "Janet and Stan have had a close professional relationship over many years," she said. "They will work terrifically together as a team."

The author of a widely used textbook on macroeconomics, Fischer has taught many of the leading lights of the profession, including Bernanke and European Central Bank chief Mario Draghi. As the top deputy at the International Monetary Fund from 1994-2001, he played a key role in battling the Asian financial crisis.

More recently, Fischer, who has both U.S. and Israeli citizenship, was credited with helping Israel safely navigate the shoals of the 2007-2009 financial crises. He stepped down as governor of the Bank of Israel in June, three years into his second five-year term. His lengthy experience battling economic crises and his international expertise could be important assets at the Fed.

Brainard, 51, also brings a wealth of international experience. As undersecretary of the Treasury for international affairs for 3-1/2 years, she was a major contributor to efforts to push China toward a more-flexible currency and frequently pressed Europe to tackle its debt crisis more aggressively. Previously, she had served as deputy director of President Bill Clinton's National Economic Council, focusing on international trade and financial policy.

Powell is a domestic finance expert. He served as a top Treasury official under President George H.W. Bush. When he was originally nominated by Obama to the Fed in 2011, the move was seen as a way to mollify Senate Republicans.

The current selections would fill out the normally seven-member Fed board, which is the nucleus of U.S. monetary policymaking. Unfortunately, Fed Governor Sarah Bloom Raskin is awaiting Senate confirmation to be the No. 2 official at Treasury, meaning another vacancy at the Fed.

Last month, the Fed decided to trim its monthly bond purchase pace to $75 billion from $85 billion, with an eye toward shuttering the program by late in the year. Yellen has been a strong advocate of the central bank's aggressive actions to stimulate the economy through low interest rates and large-scale asset purchases.

Even so, there is some consensus that Yellen will continue to wind down the bond-buying program, although a report on Friday that pointed out some unexpectedly weak job growth in December, which in turn put a question mark over how quickly the Fed might move.

In tapping Fischer, who taught at MIT for many years, Obama has chosen someone whose economic credentials are beyond reproach. Nonetheless, Fischer's recent position as chief of a foreign central bank, and his stint in the mid-2000s as vice chairman of Citigroup, which later required a government bailout, could constitute red flags for the senators who need to confirm him.

Fischer was born in present-day Zambia, where his parents, Jewish immigrants from Eastern Europe, ran a general store. When he was 13, his family moved to what is now Zimbabwe. He took an economics course in high school, and was hooked for life. He went on to study at the London School of Economics and then MIT. At MIT in 1977, he wrote an influential paper arguing that monetary policy can effectively increase employment.