MarketView for September 7

Summary

Despite a rising contrarian opinion the major equity indexes managed to hold steady at four-year highs on Friday, closing out their best week since June as a sharply disappointing jobs report only fueled expectations that the Federal Reserve would act to stimulate the economy next week. The S&P closed higher but strength in both the Dow and Nasdaq was limited by blue-chips Intel and Kraft, both of which warned on their profit outlooks.

The August nonfarm payrolls report showed job growth of only 96,000 new jobs, well under the 125,000 jobs that had been expected. However, that only served to increase the chatter as to how the Federal Reserve had little choice but tol announce additional stimulus after its policy meeting ends Thursday.

The expectations for central bank intervention, both from the Fed and the European Central Bank, has fueled a rally that took the S&P 500 to its highest level since January 2008 on Thursday and pushed the Nasdaq to a 12-year high. The intervention is becoming almost a forgone conclusion given the ECB's decision to launch a potentially unlimited bond-buying program to lower struggling euro zone countries' borrowing costs.

Energy and financial shares were among the  strongest of the day, as investors bought shares in areas tied to the pace of economic growth. ConocoPhillips rose 1.5 percent to $56.64 while Noble Energy rose 2.4 percent to $91.50. Bank of America gained 5.4 percent to end the day at $8.80.

For the week, the S&P is up 2.2 percent while the Dow is up 1.6 percent and the Nasdaq chalked up a gain of 2.3 percent. It was the best week for the S&P and Nasdaq since June, and the best for the Dow since July.

Intel cut its third-quarter revenue estimate and withdrew its full-year forecast, stating that demand for its chips declined as customers reduced inventory and businesses bought fewer personal computers. Shares of the world's largest chipmaker fell 3.6 percent to $24.19. Meanwhile, Kraft Foods gave earnings forecasts for the two companies it will split into next month that disappointed analysts. The stock, which like Intel is a Dow component, fell 5.5 percent to $39.99.

The jobs report showed the unemployment rate dropped to 8.1 percent from 8.3 percent in July, but it was largely due to Americans giving up the search for work.

China approved $157 billion in infrastructure spending in a move to energize an economy that has recently shown signs of slowing. AK Steel surged 7.6 percent to $5.78 while James River Coal added 5.3 percent to $2.76 and Alpha Natural Resources ended the day up 17 percent to close at $6.90.

Shares of Pandora Media fell 17 percent to end the day at $10.47 following media reports that Apple was in talks to license music for a radio service like the one Pandora operates.

About 65 percent of companies traded on the New York Stock Exchange closed higher while 56 percent of Nasdaq shares ended higher.

Volume was light, with about 6.44 billion changing hands on the three major equity exchanges, a number that was below last year's daily average of 7.84 billion shares.

Job Growth Does Not Meet Expectations

Job growth slowed sharply in August, but setting the stage for the Federal Reserve to pump additional money into the sluggish economy next week. According to a Labor Department report Friday morning, nonfarm payrolls increased only 96,000 last month. That number was well below what would normally be needed to put a dent in the jobless rate. Payrolls had grown by 141,000 jobs in July.

While the unemployment rate dropped to 8.1 percent from 8.3 percent, it was only because many Americans gave up the hunt for work. The survey of households from which the jobless rate is derived actually showed a decline in employment for a second straight month.

The weakness in the jobs market last month was virtually across the board, with average hourly earnings slipping and manufacturing -- the star of the recovery from the 2007-09 recession -- shedding jobs for the first time in nearly a year.

The expectation had been for payrolls to rise 125,000 last month, but some had pushed their forecasts higher after upbeat private sector data on Thursday. Fed Chairman Ben Bernanke last week said the labor market's stagnation was a "grave concern," a comment that raised expectations for a further easing of monetary policy.

The economy has experienced three years of growth since the 2007-09 recession, but the expansion has been grudging and the jobless rate has held above 8 percent for 43 straight months, essentially all of Obama's term and the longest stretch since the Great Depression. Economists say jobs growth in the range of 125,000 a month would normally be needed just to hold the unemployment rate steady. The jobless rate peaked at 10 percent in October 2009

The lack of headway in putting Americans back to work has also has put the question of further monetary stimulus on the table at the Fed. The Fed has held interest rates close to zero for nearly four years and has pumped about $2.3 trillion into the economy through two bouts of bond buying, or quantitative easing, to drive borrowing costs lower and spur growth. In addition, it has said it expects to hold rates near zero at least through late-2014, a pledge that is also in play at next week's meeting.

The weak tenor of the jobs report was underscored by revisions to June and July data that showed 41,000 fewer jobs created during those months than previously reported. In addition, the labor force participation rate, or the percentage of Americans who either have a job or are looking for one, fell to 63.5 percent in August, the lowest in 31 years. A total of 368,000 people gave up looking for work last month, the household survey showed.

Since the beginning of the year, job growth has averaged 139,000 per month, compared with an average monthly gain of 153,000 in 2011. Last month's tepid gains left the economy 4.7 million jobs short of where it stood when the recession started.

Manufacturing payrolls fell 15,000, largely because of declines in automobile assembly jobs. Factory jobs were inflated in July because auto manufacturers kept plants running when they would normally shut them for retooling. And There was little improvement in construction employment, which added 1,000 jobs, even though home builders continued to break ground on new projects at a fast clip. Temporary employment, seen as a harbinger of future permanent hiring, declined for the first time since March.

Retail jobs were one of the few bright spots, rebounding after declining for two straight months, while payrolls at utilities grew by 8,800 jobs. That was a snap back from a strike in July. Government payrolls declined for a sixth straight month, dragged down by state and local governments as they continue to tighten belts to balance their budgets. The average work week was steady at 34.4 hours in August. Average hourly earnings fell one cent, which could weigh on consumer spending and hurt overall economic growth. Earnings have risen just 1.7 percent over the past 12 months.