Take ADP Number With 'Grain of Salt,' Watch Friday's Jobs Report: Strategist

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Investors loved what the saw out of the ADP jobs report Wednesday, but one strategist says to hold your horses.

The S&P 500 rose more than 1% on the strength of not just big tech, but also all cyclical sectors.

The ADP jobs report smoked expectations, with a September reading of 749,000 jobs added against economists estimates of 600,000. All large cap cyclical sectors were up meaningfully, with oil, banking, manufacturing and consumer discretionary all up between between a few tenths of a percentage point and 2%.

But the Bureau of Labor Statistics’ Friday report usually holds more weight with investors, can provide a different number than ADP and provides more color on the nature of the jobs report.

As to whether investors need to be watchful of Friday’s report rather than being completely satisfied with Wednesday’s report, “I think so,” said Shawn Cruz, senior market strategist at TD Ameritrade.

 As to why investors were happy to pick up some more shares Wednesday, “It shows we’re headed in the right direction,” Cruz said. Economic data recently have been mixed, but “we actually saw large, medium and small businesses put out some pretty healthy gains, so this indicates strong direction for the labor market.”

He noted, though, the BLS report will show what portion of employed or unemployed people are part-time or view themselves or furloughed. So on the ADP report, “you may want to take a little bit of a grain of salt where you have some sort of mental adjustment,” Cruz said.

The point: Investors are indeed encouraged by indications of the speed of the economic recovery, which is supporting 2021 earnings estimates, upholding stocks at their current valuations. Still, Friday’s jobs report will likely decide the mood of the market for the next few days thereafter. 

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