The S&P 500 closed at 1,005.65 on Tuesday, just one-tenth of a point shy of the high on November 4th of last year, the day Barack Obama was elected President. Of course, we all know too well what happened over the four months following the election as stocks plummeted over 30%. So today, the S&P 500 is sitting just below a major level of resistance. Will the market break through this resistance to the upside, or will the long-awaited correction finally begin? Odds are high that we will get that answer on Friday morning at 7:30am when the Payroll Employment report for July is released.

After nearly five months of a seemingly overextended market rally based on “green shoots” (the term for data showing a less dramatic decline in economic activity) investors will be looking for further evidence that the end of the recession is near. We’ve been noting that high unemployment and continuing job losses will cause any recovery to be weak, and will also lead to further home price declines and bank losses. Therefore, substantial improvement in the rate of monthly job losses would be a welcome sign and will likely drive stocks higher. Consensus expectations call for 325,000 jobs to be lost in July, down from 467,000 lost in June. My forecast? Despite elevated private sector job losses, hiring by the government and the magical birth/death adjustment (simply a government guess-timate of jobs created by new businesses) will come to the rescue, resulting in job losses near market expectations.

Today we got a glimpse of what could occur on Friday with ADP’s measure of private sector job losses. While the ADP report does not always correlate well with the government’s official report, the ADP survey came in with 21,000 more job losses than expected. One other reason for caution is today’s release of the ISM index of service sector activity, which showed a slight decline in July compared to expectations for an improvement from June. In any event, investors largely shrugged off these numbers, preferring to wait for the main event on Friday.

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