Good news about jobs should give the stock market a lift, but don't expect it to hold.
The Labor Department's report Friday that March saw the biggest increase in jobs in three years has boosted expectations for the economy. Investors dumped safe investments like bonds and pushed the dollar higher in a sign of confidence in the recovery. The stock market was closed for the Good Friday holiday but stock futures contracts -- investors' bets on what they think the market will do later -- blipped higher.
All signs point higher for the stock market. The trouble is that some buyers have been looking a little winded lately. Stocks may get a bounce from the jobs numbers but some analysts warn that any gains will be hard to hold onto.
John Horcher, an executive at the financial services research group First Coverage in Boston, said he expects the market might get a boost for a week or so but that the jobs report wasn't strong enough to hold off a pullback after five straight weeks of gains in major stock indexes.
First Coverage tracks analyst recommendations to measure the mood of investors. Horcher said analysts at brokerage firms are saying: "It's time. The party is over and there will be a correction here."
The stock market might have gone too far, but the jobs numbers provided an important sign that the economy is finally starting to make good on the most important sign of a rebound -- creating jobs.
Employers added 162,000 jobs in March, the most since the recession began in December 2007 but still less than the gain of 190,000 analysts had forecast. Private employers, not the government, accounted for most of the hiring, which is good news. Analysts had expected temporary hiring for the 2010 census was going to pad the overall hiring number more than it did.
The unemployment rate remained flat at 9.7 percent for a third straight month.
The gain in jobs still marks a big turnaround from a year ago, when the economy was losing an average of 700,000 jobs a month.
There were other kernels of good news in the monthly report, including an increase in hiring of temporary workers and an increase in the average number of hours worked. Employers tend to bring in temps and work other employees longer before they sign off on permanent hiring.
There also were some disappointments, however. The number of people still looking for work for at least six months rose to a record 6.5 million, and average hourly earnings slipped. That's a sign that employers aren't having to raise pay to keep workers.
Tom Samuels, manager of the Palantir Fund in Houston, said even with a slow recovery in jobs there are other threats to the economy such as the prospect of higher taxes and rising commodity prices.
Samuels said the stock market has been rising based on its own internal dynamics in recent months rather than on expectations that the economy is improving.
"It's a momentum market right now, and one that has a fair amount of danger lurking," he said.
Last week, early gains in the market fizzled by the closing bell on several days. Trading volume also has been light. That's a sign that fewer buyers are lifting the market and that more people are staying on the sidelines.
Some analysts say a retreat is overdue. The Dow Jones industrials have been up for the past five weeks. That's the longest streak of weekly gains since last April, when the index was racing off of a 12-year low.
The Dow is up 10.3 percent from its 2010 low about two months ago. A gain that size might ordinarily come over a year. The overall climb of 4.1 percent in the January-March period made it the Dow's best first quarter since 1999.
Other analysts say it's too soon for investors to turn away from stocks. The advance in the last two months has come in small bites, not the kind of leaps seen in 2009 after the market turned higher.
Andrew Neale, head of portfolio management at Fogel Neale Partners in New York, noted that shares of BlackBerry phone maker Research In Motion Ltd. dropped 7 percent Thursday after its fiscal fourth-quarter results missed analysts' expectations. He said the punishment of that stock is an encouraging sign that investors aren't getting euphoric.
Neale said the market still has room to climb without becoming overvalued. He said the benchmark Standard & Poor's 500 index could rise to 1,250 before stocks will start to be overvalued. That would be a gain of 6.1 percent from the S&P's close of 1,178 on Thursday.
Even if the climb continues, Neale expects the performance of stocks will start to vary more widely than it did last year. Neale said investors will need to be more selective.
"This is not a buy-and-hold market," he said. "You could have bought anything a year ago. You could have picked at random with a pin on a list and made money."
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