10/30/2010 12:37 pm ET Updated May 25, 2011

Signs of a Nifty Jobs Surprise

Hey, good news. Just maybe we're seeing some light at the end of the jobs tunnel.

Come Friday, we'll get the October employment numbers which numerous economists predict will show a paltry gain of between 25,000 and 75,000 new private sector jobs.

Too low, says economist Madeline Schnapp, a consistent and accurate bear on employment trends over the past year. Now, though, she has suddenly shifted gears over the near term, citing such job-hiring stimulants as a lot of home refinancing, brisk hi-tech infrastructure spending, an upswing in health care hiring and a jump in commodity prices.

To Schnapp, director of economics at West Coast liquidity tracker Trimtabs Research, which is partially owned by Goldman Sachs,the stimulants mean an employment surprise -- the creation of about 100,000 new private sector jobs in October.

That would follow some recent good news on the employment front -- namely a fall in the latest weekless jobless claims to 434,000, the lowest level since July.

A one time seismologist who used to predict earthquakes, Schnapp now predicts a mini-market explosion in reaction to her higher than expected jobs numbers, something on the order, she figures, of a Dow rise on Friday of between 150 and 180 points.

While pointing to signs of a pickup in employment, Schnapp is quick to stress that "we're still not over the hump since we need to create 150,000 to 200,000 a jobs a month just to keep up with population growth." She also sees the market vulnerable to another economic shock, such as further rise in oil to say $100 to $120 a barrel, which would send the currently rising gas price to $4-$4.25 a gallon. It's now above $3 a gallon in a number of areas of the country.

Getting back to the stock market, a lot of leery stock market players are suddenly hot to trot again, obviously seduced by the recent rise in equity prices, namely a surge in the Dow of more than 1,000 points or about 11% since Sept. 1.

"You can easily sense greed and risk are back in fashion," says Los Angeles money manager Arnold Silver of A. Silver Associates, who notes that he's getting increasing calls from clients about speculative stocks that he says no one in the world should ever think twice about. "People seem to have lost sight of the huge market decline in recent years and all the lost wealth," he says. "I think it's dumb to do that this soon, considering all the unknowns."

Like most people, Silver, who views the market as overbought and vulnerable at current levels,
looks for the G.O.P. to rack up solid election-day gains. But he thinks it would be a mistake for investors to over-react to a GOP victory because he doesn't see any immediate benefits, notably cutbacks in government spending, reduction in entitlements, the avoidance of higher taxes or substantive new steps to pep up a slightly improving economy.

"We're looking at a lame duck President and political gridlock, which means little, if anything, will get done in Washington," says Silver. "Why would anybody think that's good for stock prices?"

One of Wall Street's premier technicians, Oppenheimer & Co.'s Carter Worth, is also hoisting warning flags. If indeed he's on the money, it's worth giving some thought to an old saying, When everything is coming your way (as is the case now with many stocks), you're in the wrong lane.

His latest readings suggest Wall Street's bulls would be wise to take a breather before they're the ones who get gored. The danger, as Worth sees it, is that the early birds have caught the worms, that the good news that has compelled stock prices higher is already being discounted in the marketplace. Here, he's referring to pretty decent third-quarter earnings, the second round of quantitative easing (QE2) from the Federal Reserve and Republican gains in the mid-term elections.

As such, he's telling clients that the market, as measured by the S&P 500, should wind up the year at pretty much where it started (at about 1115). Since the index is currently around 1180, Worth essentially is warning that equity prices are headed lower.

The most dangerous market sectors, as Worth sees them, are the financial and consumer discretionary areas. In the latter area, he views Chipotle Mexican Grill and Fossill as especially vulnerable since, he says, they're both overextended and priced to perfection. His most appealing sectors: energy, industrials and utilities. He's also enthusiastic about gold. whose uptrend, he notes, remains intact. His favorite gold stocks are Barrick Gold and Newmont Mining.

What about Apple, the apple of many an investor's eye? It, too, is viewed as extended, but Worth says its uptrend remains intact, allowing the stock free to work its way higher. As for Google, another market favorite, he says it has been repriced higher to a difficult level and is likely to back and fill for many weeks

How does the market usually perform during mid-term elections? Sam Stovall, Standard & Poor's chief investment strategist, offers some perspective. During the 20 mid-term elections since 1930, the S&P 500 rose an average 2.2% in November and posted increases 65% of the time.

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