Initial claims and Costco — What you need to know in markets on Thursday

Stocks eked out another record high on Wednesday, as each of the three major U.S. indexes hit a new high for the third time in as many days.

The small-cap Russell 2000, however, closed lower on Wednesday to snap a 9-day winning streak, matching the streak the index had after President Donald Trump’s surprise election win in November.

On Thursday, investors will focus on the labor market with the weekly report on initial jobless claims set for release, as well as the monthly reading on job cuts from employment firm Challenger, Gray & Christmas.

The corporate calendar on Thursday will also feature earnings results from Constellation Brands (STZ) and Costco (COST). Costco is likely to garner investor attention as the entire grocery and food retailing sector has been in focus since Amazon’s (AMZN) move to acquire Whole Foods earlier this year.

A Costco truck makes a delivery to a Costco store in Carlsbad, California, U.S., May 8, 2017. REUTERS/Mike Blake/File Photo

Thursday’s data follows a report from payroll processor ADP on Wednesday that showed 135,000 jobs were created in the private sector in September, a slowdown from August likely owing to the impacts of Hurricanes Irma and Harvey.

Mark Zandi, chief economist of Moody’s Analytics, said, “Hurricanes Harvey and Irma hurt the job market in September. Looking through the storms the job market remains sturdy and strong.” On Friday, the government’s official jobs numbers will be released and Wall Street economists are looking for nonfarm payrolls to rise by 80,000, a slowdown from August.

Elsewhere in economic data, Wednesday also saw the release of readings on activity in the services sector, with the Institute for Supply Management’s reading on the sector jumping to a 12-year high in September.

“The surge in the ISM non-manufacturing index is a clear sign that the economy is recovering quickly from any hurricane-related disruption and that the underlying pace of GDP growth remains strong,” wrote economists at Capital Economics.

“A weighted average of the ISM manufacturing and non-manufacturing indices is consistent with GDP growth accelerating from 3.1% annualised in the second quarter to over 4% in the third.”

Fed musical chairs

In February, Janet Yellen’s four-year term as the chair of the Federal Reserve will come to an end.

Before then, we expect President Trump will name a replacement, though the administration has not ruled out re-nominating Yellen to another term.

Currently, political prediction market PredictIt pegs Kevin Warsh, a former Fed governor who served under the Bush and Obama administrations, as the odds-on favorite. And a Bloomberg report on Tuesday said that in addition to Warsh, Yellen, current Fed governor Jerome Powell, and Trump’s chief economic advisor Gary Cohn have been short-listed by the president’s staff. Stanford professor John Taylor is also under consideration, Bloomberg said.

These four men as seen as the frontrunners to succeed Janet Yellen as Chair of the Federal Reserve. (Source: Yahoo Finance)

Meanwhile, widely followed bond investor Jeffrey Gundlach said on Tuesday that he thinks Neel Kashkari, currently the president of the Minneapolis Federal Reserve, will be the next Fed president. And while PredictIt’s markets reacted to Gundlach’s call, putting Kashkari as the second-most likely successor to Yellen at one point on Wednesday morning, CNBC reported that the White House is not considering Kashkari.

All of this, of course, makes for an interesting storyline to follow for those who are markets junkies or like the palace intrigue of the world’s premier central bank making staff changes. Many folks, of course, have no idea who these players are.

And while perhaps trying to tease out which way Trump might go with his pick seems a bit like guessing who the next Pope will be, this decision is likely to be Trump’s largest economic move of his presidency.

Tax reform has long been in the background of a Trump economic plans and has more recently become a central issue in the minds of investors after last week’s outline from the administration. It seems clear, however, that there is not yet a clear path to getting a tax reform bill drafted, let alone passed through the House and Senate. Those looking for action out of Washington, D.C. are likely to remain waiting, a state of affairs that has become to be the norm in the Trump era.

Nominating a new Fed chair, however, has a real timeline.

Investors are closely watching potential impending changes at the Fed, which could be President Donald Trump’s biggest economic decision to date.

Because come early February 2018, Janet Yellen’s term is up. Perhaps she is nominated for a second term. But either way, an answer is needed by then.

And while Gundlach’s call that Kashkari would be the next Fed chair garnered the most interest from markets on Tuesday, his broader assessment that the person in charge of the Fed matters a whole lot for markets is worth keeping in mind, as well.

In the last four years, things have basically gone as Janet Yellen planned them. First, the Fed’s quantitative easing program was wound down successfully. Then interest rates were slowly moved higher. Now, the Fed will start letting its over $4 trillion balance sheet slim down. Slowly.

“If I were Janet Yellen, I would be counting the days left in my sentence like a prisoner in jail, counting with things on the wall, hoping that nothing goes wrong, because she’s so close,” Gundlach said at the Vanity Fair New Establishment Summit. “It’s February of [2018] that she’s out. And nothing has gone wrong. Her legacy is really about as good as it can possibly get.”

And starting in February, someone else’s legacy at the Fed will begin. It’s up to Trump to decide who that person is.

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland

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