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Global Macro: Jobs Report Dents Optimism

NEW YORK (TheStreet) -- Friday's payroll number brought fear into the market and led analysts to believe the jobs recovery may not be as strong as once thought.

The U.S. economy added just 74,000 jobs in December, versus an expected increase of 196,000. My article on Friday stated that such elevated expectations left little room for an upside surprise. The number fell far short.

Some cited poor weather for the low number, which is a valid explanation, unless the underperformance becomes a trend. Next month's employment estimates are expected to be revised lower, in which case beating the estimate -- along with a possible revision upward of past data -- would be bullish for labor market sentiment.

Many investors are now turning their attention to the U.S. corporate earnings season. Financial institutions report this week, and the results will provide insight into the health of lending in the U.S. If banks outperform expectations, then projections for first-quarter economic growth and consumer spending may be revised higher.

At the end of 2013, many companies offered cautious outlooks. If companies beat estimates, then stock market valuations will likely stay at current levels or move higher.

Meanwhile, entering the new year, economists believed that reduction of bond purchases by the Federal Reserve would continue at a gradual pace and that stimulus would be completely removed by 2015. The weak labor number on Friday has slightly hurt that optimism. Now corporate earnings are the next sign of the state of the economy.

If corporate results underperform, there could be a call for more or extended stimulus measures. Long-dated bonds would take their cue from investors and most likely would be bid higher. If both corporate results and economic data come in below estimates in future months, then interest rates could fall and Treasuries could begin a new rally.

TLT ChartTLT data by YCharts

At the time of publication, the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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