NEW YORK (TheStreet) -- The jobs report that will be released on Friday may signal that economic strength will continue into 2014 and may push stocks higher.
Since the Federal Reserve began to reduce its bond purchases in December, strong labor market data have kept markets in an uptrend. Investors have viewed higher-than-expected job numbers as justification for tighter monetary policy.
The chart below is of the SPDR S&P 500 (SPY). The initial breakout above the 182 level in late December was due to the euphoria surrounding tapering, as traders took the Fed's decision to cut stimulus to mean that policymakers viewed the economic recovery as sustainable.
Since the late month run-up in equities, the new year has been filled with calm consolidation. Investors are now looking for a fresh round of positive data to spur another rally.
The volatility index, better known as VIX, remains in a steady downtrend, which signals investor confidence in the equities uptrend. Although short-term spikes in the VIX could lead to equity selling, there hasn't been a reversal pattern yet in equities.
The positive data have created a virtuous cycle, guiding expectations higher. That leaves room for slight misses that could push investor sentiment lower.
The expectation for the payroll number is just under 200,000 jobs added in December. The 200,000 figure has had some significance in the past determining if the jobs number was viewed as overwhelmingly positive or just average.
Despite the risk of a one-time miss that would push equities lower, the long-term employment trend remains strong. As long as the economy keeps pace with the improvement seen last quarter, investor sentiment should remain elevated.SPY data by YCharts
At the time of publication, the author had no position in any of the stocks mentioned.
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