By Steven C. Johnson
NEW YORK (Reuters) - After learning the economy added no new jobs in August, investors say they are ready for bold ideas from Washington to put people to work.
The problem is, few are convinced that politicians can deliver, particularly with the 2012 election barely a year off and acrimony among Democrats and Republicans running high.
That means President Barack Obama will be preaching to a pretty tough crowd on Thursday when he details plans to boost employment.
"In many respects, his hands are tied. It takes time to create jobs," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey. "And he's not going to have much cooperation from the other side of the aisle."
Still, the stakes for the economy and financial markets are high. Obama's speech comes with the jobless rate at or above 9 percent for a fifth straight month and his own approval ratings hovering near their lowest level since his 2008 election.
Greg Salvaggio, vice president of trading at Tempus Consulting in Washington, called it "a make-or-break moment."
"People would welcome almost anything at this point, but we need something bold, something that will pump money into consumers' hands and boost confidence," he said. "The market has been disappointed by the approach the White House has taken so far. They're looking for definitive leadership."
Media have reported Obama will push a $300 billion job creation package that includes tax cuts, infrastructure spending and aid to state and local governments. The White House has refused to comment on the estimated cost.
"To get the markets excited, a fiscal package would have to include some tax cuts and some infrastructure spending," said Ray Humphrey, senior vice president and senior portfolio manager at Hartford Investment Management Co, with $160.8 billion in assets under management.
Some traders said a nearly 3 percent rise in the benchmark S&P 500 index on Wednesday and a pullback in gold prices may reflect optimism that Obama will come out swinging.
But there's also scope for disappointment. Doug Cliggott, U.S. equity strategist at Credit Suisse, said tax cuts would probably have to be big and permanent to stoke a serious stock market rally, "and that won't be easy to do."
He recently reduced his year-end S&P 500 forecast to 1,100 from 1,275, saying earnings will contract in 2012 as nominal growth weakens, labor costs edge up and the dollar stabilizes as risk-averse investors bring money back home. A weak dollar helps overseas earnings for many S&P 500 firms.
If Obama can't sway legislators, his speech may turn into little more than a quick trading opportunity.
"Most people realize there is no magic dust here," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey. "He can't wave a wand and create a million jobs."
ACRIMONY IN WASHINGTON
U.S. lawmakers have not inspired confidence this year on Wall Street or on Main Street. An acrimonious fight over the budget and the rising U.S. debt burden this summer led Standard & Poor's to strip the country of its AAA credit rating.
Markets did not react well to the resolution of the debt-ceiling fight, and the subsequent downgrade ignited an even bigger stock market sell-off while sending business and consumer confidence tumbling.
Since 2012 is an election year, hopes that Democrats and Republicans can cooperate at all are thinner than ever, with politicians likely to stand idly by watching as confidence continues to wane.
What's more, the mood in Washington, as elsewhere in the developed world, has turned sharply toward deficit reduction, leaving little appetite for more government spending.
Republicans criticized an earlier $800 billion fiscal stimulus program pushed by the White House, saying it had little real impact on the economy.
More than two years since the country emerged from recession, some 14 million Americans remain out of work. The budget deficit is running near 10 percent of total output, among the highest as a percentage of GDP since World War II.
"What makes this so daunting is there is no consensus on what would be a constructive set of actions to pursue," Credit Suisse's Cliggott said. "There's agreement that the patient is not well, but there seems to be a huge disagreement among the consulting physicians about what the right course of treatment might be."
One thing Obama may have on his side is the element of surprise. Krosby said markets rose smartly in 2010 when he dropped his earlier opposition to extending Bush era tax cuts.
"Expectations are rather low," she said, "so the president may come out again and surprise the market to the upside."
(Additional reporting by Ellen Freilich; editing by Dan Grebler)