NEW YORK (
TheStreet) -- The threat of a significant market correction is expected to fade next week as investors anticipate data confirming continued improvements in the U.S. labor market.
Employment trends will be a focal point for the week. This first read on the labor market will come on Wednesday, when Automatic Data Processing releases its report on private-sector jobs for February. Analysts polled by
Thomson Reuters expect ADP to report that companies added 200,000 jobs during the month, after an addition of 170,000 in January.
The Labor Department will follow up on Thursday with its weekly read on jobless claims. The number of Americans filing for first-time unemployment benefits is expected to fall to 350,000 from 351,000, according to an estimate from
The week's employment data will wrap up on Friday with the government's nonfarm payrolls report, which is expected to show continued growth, albeit at a slightly slower pace of 210,000 compared with an increase of 243,000 the preceding month.
"We continue to expect an above-consensus number," says Phil Orlando, chief equity market strategist at Federated Investors, of the nonfarm payrolls number. While the consensus for February non-farm payrolls sees an increase of 210,000, Orlando predicts that it will be higher at 225,000.
"Generally speaking, the continued positive trends in claims for the last four months continues to suggest that the labor market is going to improve," he added.
The unemployment rate now holds steady at 8.3%, but Peter Cardillo, chief market economist at RockwellGlobal.com, says that there will be more improvement in hiring when there's more clarity on how steep the recession in Europe is going to be. "That is one of the reasons we're not seeing more aggressive hiring in the U.S."
The S&P 500 and Nasdaq have been trading at 52-week highs, staging their best start to the new year since 1987. The S&P is up 28% from the bottom of the bear market last October. That far exceeds the momentum that Orlando had been predicting. His firm's forecast at the start of the new year was that the S&P 500 would grind higher to between 1350 and 1370 by the middle of the year, but the benchmark index has already achieved this two months into the year.
For the full year, his team has been looking for the S&P to reach 1450. With only a 10% move to go before the index reaches this level, a correction may be in store -- but the correction would likely be a healthy 3% to 5%, according to Orlando. He believes it would create buying opportunities in stock stories linked to the domestic recovery, particularly in technology, financial and consumer discretionaries.
Bears believe that Middle East tensions and the spike in crude oil and gasoline prices, as well as a potential hard-landing in emerging market growth economies, could lead to a much more severe correction in the markets. However, Orlando and Michael Gayed, chief investment strategist at Pension Partners, see these views as flawed.
"I think the bears are just talking their books, hoping investors will sell and knock the market down 10% so that the 'hedgies' can put money to work at better prices," warns Orlando.