Stocks and bonds finished Thursday virtually unchanged, as all attention focused on the coming payrolls report. Wall Street is expecting a good number: 225,000 jobs added in February is the consensus forecast with whisper numbers going even higher.

The Street has been notoriously high in estimates over the past year as

colleague Mike Marino and

RealMoney.com

contributor Barry Ritholtz have pointed out. But this may be the month the Street's analysts finally get to cash in all those job-growth chips they've been piling up.

That's because one of the best forward employment indicators, the Institute for Supply Management's index of nonmanufacturing employment, rose to its highest level since 1997, the group said on Thursday.

But the ISM report didn't help stocks much as oil prices rose briefly over $55. For a second day, the

Dow Jones Industrial Average

couldn't hold early gains. It peaked intraday at 10,869.17, eclipsing its 52-week intraday high, but closed at 10,833.03, up 0.2%. The

S&P 500

peaked at 1215.72 and closed at 1210.47, up less than 1 point. The

Nasdaq Composite

brought up the rear, fading after peaking early at 2074.71 to close at 2058.40, down 0.4%. The yield on the 10-year note was just about unchanged at 4.38%.

The bond market is already expecting a pretty strong number and probably has more upside potential if the number comes in low. The logic for stocks is less obvious, with a high number potentially leading to more

Federal Reserve

rate hikes. The best scenario for stocks continues to be the so-called Goldilocks result, or job growth just a little less than forecast but still keeping the economy -- and the consumer -- moving forward.

Working on Jobs

The ISM's employment index spiked to 59.6, the highest reading since the survey began, from 52.2 in January. Notably, the January surprise drop in the employment component foreshadowed less-than-expected payrolls growth that month.

"Because of this reading in the index and the strong correlation between

the employment index and the payrolls report we believe that the risks to the employment figure for February are clearly and sharply to the upside," writes Wachovia economist Jason Schenker.

Even Asha Bangalore at Northern Trust, who has been bearish on the economy, is calling for a big gain. She expects construction employment will bounce back from a January decline. Also, the four-week moving average of weekly jobless insurance claims is down to 307,000, the lowest since November 2000, she adds.

Another bullish indicator on Thursday came from retailers. The International Council of Shopping Centers said sales rose almost 5% in February from the same month a year ago, the biggest gain in nine months. The strongest gains were at luxury retailers, footwear stores and drug stores, the group said.

Oil is up about 15% since mid-February so why didn't higher gas prices nail retailers last month? There are at least two reasons. Retail gasoline prices didn't move anywhere near as much as the average gallon cost $1.90 on Feb. 14 and rose to only $1.93 by the end of the month, while a barrel of oil jumped from $47 to almost $52 during the same two weeks.

Also, continuing a 2004 pattern, luxury retailers are outperforming lower-end outlets. High-income shoppers are less affected by gas prices, which represent a smaller portion of their expenses.

Delayed Gratification

Diverging expectations for homebuilders' results were evident on Thursday.

Hovnanian

(HOV) - Get Hovnanian Enterprises, Inc. Class A Report

, which reported a 41% jump in quarterly profits and raised its full-year profit forecast on Wednesday night, gained 2%.

TheStreet Recommends

But other builders fell, including

KB Homes

(KBH) - Get KB Home Report

, which was down 3%, and

William Lyon

( WLS), which was down 3%.

UBS analyst Margaret Whalen, one of the biggest homebuilding bulls on Wall Street, issued a cautionary note on Wednesday that bad weather in California might hurt results for the most recent quarter. Already, William Lyon and

MDC

(MDC) - Get M.D.C. Holdings, Inc. Report

have blamed weather for shortfalls. Whalen said KB and

Lennar

(LEN) - Get Lennar Corporation Class A Report

, two much bigger builders, also do a lot of business in California and could be vulnerable.

Still, if such shortfalls are truly due to bad weather, home sales should just be delayed, not canceled. A good "tell" on the strength of various builders' backlogs could be how fully and how quickly any delayed sales from the current quarter are recouped.

Over at Schaeffer's Investment Research, the firm sees the pessimism in the media about homebuilders (

guilty as charged

) as a sign that it's still safe to buy. The firm especially liked Hovnanian and KB Home largely because of trends in the options markets. Investors have bought far more put options, or bets that the stock will fall, than optimistic calls, Schaeffer's notes. For Hovnanian, 1.27 puts have been bought in options coming due the next three months than calls while for KB Homes, the ratio is 1.45. Both stocks also have logged huge short interest.

Two other homebuilders also show high ratios of puts to calls:

Toll Brothers

(TOL) - Get Toll Brothers, Inc. Report

and

Pulte

(PHM) - Get PulteGroup, Inc. Report

.

Such contrarian signs certainly will help the stocks if more good news is forthcoming. If the growing inventory of unsold homes, rising interest rates and bad weather catch up to the sector, it won't matter much.

In keeping with TSC's editorial policy, Pressman doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send

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