Market Talk

The shoots have bloomed. Right?

US stocks surge, as the buildup to the stress test report is over, and April’s job reports provides more evidence that the rate of economic decline is itself declining.

DJIA jumps 165 (2%) to 8575, up about 4.4% on the week. S&P 500 rises 22 (2.4%) to 929, Nasdaq Comp gains 23 (1.3%) to 1739.

Equities the globe over had a strong week, and the shift into riskier plays is obvious. Investors are betting signs of slowing decline presage a recovery, but the nation is still shedding more than 500,000 jobs a month, and actual signs of growth are few and far between.

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The recession’s over, bull market’s in full swing and economy’s on the rise, right?

Watching the stock market over the last two months, one would think all of the national troubles have been brushed aside with a new period of economic prosperity on the rise.

The bulls are even looking at today’s jobs data with the same optimism. So the economy lost 539,000 jobs last month, who cares? The rate of contraction is declining, which can only mean better times ahead, right?

Think again.

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Stress test results and the monthly unemployment data are being treated as more examples of green shoots in the economy, but investors would be wise to treat both with caution.

The official stress test results of the 19 largest US banks didn’t contain many surprises as leaks throughout the week had painted a pretty clear picture of the tests’ results. The Labor Department also reported that the economy lost jobs at a reduced rate last month, shedding 539,000 jobs, better than the mean expectation for a 610,000 decline.

While the job loss number isn’t great, it joins a growing list of other economic data that previously suffered vast amounts of losses and declines, but is now beginning to moderate – a sign that the economy may be stabilizing.

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It’s amazing to us that the stress tests are being greeted with such enthusiasm. When was the last time a government estimate was on the nose? But we’re supposed to expect they got this right? Right-O!

Just remember this: if the banks were healthy, they wouldn’t need the government guarantee.

One thing that has a direct impact on the banks health is the employment picture, and we’ll get April jobs report today. Anything around 500,000 will be greeted with enthusiasm.

Lot of fighting around 900 on the S&P 500 yesterday; bulls managed to hold it.

S&P futures up 12.50; DJ up 106. Ten-year down, yield at 3.36%.