Market Tends to Blow Off Good Jobs Numbers. Good Jobs Tie Fed’s Hands. Bad Jobs Demand Easing.

by CC February 2, 2012 1:46 pm • Commentary

Tomorrow we get one of the most important monthly data points on the health of the recovery, monthly non-farm payrolls. The market has had a tendency to react negatively to the news of late, despite some upside surprises. Here’s Bespoke:

Economists are expecting tomorrow’s Non Farm Payrolls report to show job growth of 145k.  Using our Database of Economic Indicators available to all Bespoke Premium Plus and Institutional clients, we created the table below which highlights the performance of the S&P 500 and each of the ten sectors on employment report days since the recession ended in June 2009.

Even though last month’s report came in better than expected, the S&P 500 declined on the day, making it the 8th consecutive down day for the index on a jobs report Friday.  This is the longest losing streak since at least 1998 when our database begins.

One reason behind this is the strange situation we find ourselves in in respect to Fed policy and further quantitative easing. Good numbers mean the economy continues its slow improvement. But good numbers also mean the likelihood of QE3 diminishes. Something that alot of market participants are apparently counting on. And the expectations of a QE3 also relates directly to the strength of the Dollar which the markets have followed fairly closely the past year. Here’s The Street:

Employment in the world’s largest economy is expected to increase another 145K in January, and the ongoing improvement in the labor market may prop up the U.S. dollar as the data dampens the scope for another round of quantitative easing. As the economic recovery gathers pace, we should see the Federal Reserve continue to soften its dovish tone for monetary policy, and the central bank may endorse a wait-and-see approach throughout 2012 as the risk of a double-dip recession subsides. However, as Fed Chairman Ben Bernanke continues to highlight the ongoing slack within the real economy, the central bank head may keep the door open to expand the balance sheet further, and increased speculation for QE3 will dampen the appeal of the reserve currency as the highly accommodative policy encourages risk-taking behavior.

Given the run-up by the market into the number tomorrow, be careful of any upside surprise and the market’s initial reaction. Conversely, A missed number may also have a counter-intuitive secondary reaction.