Wall Street Holds Steady

Stocks are little changed after the jobs report. Bond prices sink.
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Updated from 4:05 p.m. EST

Stocks in New York closed little changed Friday as the latest employment report from the government failed to give traders any reason to make big bets ahead of next week's

Federal Reserve

meeting.

The

Dow Jones Industrial Average

tacked on 5.69 points at 13,625.58, and the

S&P 500

slipped 2.68 points, or 0.2%, to 1504.66. The

Nasdaq

was off 2.87 points, or 0.1%, to 2706.16.

The generally muted action came after the Labor Department said the economy added 94,000 workers last month, about 14,000 more than had been expected by analysts surveyed for a

Bloomberg

poll. The unemployment rate was unchanged at 4.7%.

While November was down from October's upwardly revised 170,000, the headline number likely keeps the "Goldilocks" scenario alive. Many traders are hoping the not-too-hot, not-too-cold story can remain intact, allowing the economy to avoid a recession yet still giving the Fed room to lower rates again.

Fed policymakers will next gather on Tuesday, and much of Wall Street is looking for a cut of at least 25 basis points in the fed funds target rate, which is currently at 4.50%. Some want the Fed to go 50.

At its past two meetings, the central bank has reduced rates by a total of 75 basis points in an effort to stop the economy from succumbing to the housing downturn and credit crunch, but in recent weeks, officials have seemed divided on the next step, with some bankers suggesting new cuts might not be necessary and others appearing more dovish.

Kurt Karl, chief U.S. economist for Swiss Re, says the jobs report wasn't a great one, but it does suggest a low-growth economy rather than a recession. However, he believes there's a 45% chance a recession could become a reality over the next 12 months. "We have mixed signals out there currently," he says.

Though he would like to see a half-point reduction next week, he thinks a quarter-point is more probable. No move, he says, would be a "disaster."

"I think the report is strong enough we won't get the 50," Karl says, while adding that it still shouldn't prevent any easing at all. "The Fed needs to cut. We can't just sit on our hands."

Peter Morici, a professor at the University of Maryland School of Business and former chief economist at the U.S. International Trade Commission, agreed in an emailed statement that action is required, and he says the pace of job creation is too sluggish.

"Slow jobs growth, along with the shortage of business credit, declining home prices and falling industrial production, indicate the risk of a recession is clearly above 50 percent," he says. "Either the economy has already entered a recession or the risk that a recession will begin soon exceeds 50 percent."

Because of the upbeat productivity data released earlier this week, Morici thinks the Fed "can aggressively cut interest rates to combat a recession without risking inflation."

Brandon Thomas, chief investment officer for Envestnet Asset Management, says that considering the negativity about the economy, the report was quite good, as was the 0.5% increase in average hourly earnings, but not so much to prevent a quarter-point reduction next week.

"You actually need income growth to support consumer spending," especially in an environment of high energy prices and tight credit, he says.

Thomas thinks that even if there were a stumble in the first quarter or two of next year, the economy will be in a better position when the second half arrives. "We expect we'll avert a recession," he says.

Elsewhere, the University of Michigan's preliminary consumer sentiment survey for December came in at 74.5, its lowest reading in two years, and was a bit below what was expected.

The U.S. Treasury market was anything but quiet, and prices were off sharply on the long end. At 4 p.m. EST, the two-year note was down 4/32 in price, yielding 3.10%. The 10-year note was losing 25/32, yielding 4.10%, and the 30-year bond was sinking 1-16/32, yielding 4.56%. The dollar was mixed.

For the week, the Dow gained 1.8%, the S&P 1.6% and the Nasdaq 1.7%.

On the corporate side, a merger was in the news, as

Macrovision

(MVSN)

set plans to acquire

Gemstar-TV Guide

(GMST)

for $2.8 billion.

But shareholders on both sides weren't happy with the deal, with Macrovision plunging 21% to $20.44, a 52-week low, and Gemstar dropping 17% to $4.99.

Even though the financials bear watching every day, three names in particular were under pressure after being the subject of negative analyst calls.

Merrill Lynch downgraded

Capital One

(COF) - Get Report

,

American Express

(AXP) - Get Report

and

Discover Financial Services

(DFS) - Get Report

to sell from neutral. Discover fared the best, and it declined 3.2%.

Also, Morgan Stanley cut Capital One to underweight and sliced its price target nearly in half, and Stifel lowered its rating on American Express to hold.

American Express, down 4.3%, was the worst performer on the Dow, and it offset strength in

Alcoa

(AA) - Get Report

and

Verizon

(VZ) - Get Report

.

The NYSE Financial Sector Index gave back 0.5%, and the Amex Securities Broker/Dealer Index was up 0.1%. The KBW Bank Index was off 1.4%.

An easing in oil prices helped transports move upward. The Dow Jones Transportation Average increased by 1.8% and the Amex Airline Index by 3%. Oil was down $1.95 to $88.28 a barrel.

Asia's major markets were mixed overnight. Hong Kong's Hang Seng tumbled 2.4%, and Tokyo's Nikkei was better by 0.5%. In Europe, London's FTSE and the Paris Cac gained 1.1% and 0.8%, respectively. Frankfurt's Dax rose 0.7%.