THE DAY AHEAD: Jobs data weighs on Wall Street

The investment world will turn its full attention to the July unemployment figures due out Friday, hoping a cooling of the U.S. job market might be enough to dissuade the Federal Reserve Board from raising short-term interest rates.

Economists are predicting an unemployment rate of 4.3 percent. Anything lower than that would be, if you believe the theory, bad news.

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Not to beat a dead horse, but it seems contrary to common sense that more people working for higher wages should be a sign of economic upheaval ahead. Sure, the cost to employers is on the rise, but that must be offset by the spending habits of those wage earners.

As if on cue, the Internet sector staged a dramatic rally ahead of the employment data.

The table is now set for a dramatic run-up in Internet stocks if, by chance, more people were looking for work last month.

Aside from America Online Inc. (NYSE: AOL), which is wrestling with the perception that Microsoft is about to put them out of business, Internet stocks of all types made double-digit percentage gains Thursday.

There was even a rumor that vaunted Merrill Lynch was on the verge of issuing a very positive research report on Net stocks. It seems they and everyone else want to call the bottom of this horrible Internet slump.

The bears are betting that a sector that's lost 38 percent of its value since April will keep tumbling. The bulls say now's the time to buy.

"We just got to the point, especially with the Internet stocks, that the market was oversold," said Charles Payne, head analyst at Wall Street Securities. "The thinking is that stocks have gotten hit so hard that you have huge upside potential. There is some positioning for the employment data Friday."

"If the data isn't too inflationary, we could get a pretty good reversal" of the recent market declines, Payne said.

And even if the jobs report doesn't appease Wall Street, how much farther can these stocks fall?