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March payrolls strong, but US unemployment climbs

The best week on Wall Street in six months appears to have pulled the market out of its recent correction, with investors more confident that the US economy is on track.

Some analysts say however that the market may still be too pricy after a year of strong gains, and see little room for further gains or even a downward drift for the rest of the year.

In the week to Friday, the Dow Jones Industrial Average climbed 2.52 percent to 10,470.59 and the tech-heavy NASDAQ powered ahead with a gain of 4.96 percent to 2,057.17

The broad-market Standard and Poor's 500 index rallied 3.04 percent for the week to finish at 1,141.81.

It was the best week on Wall Street since the week to October 3, and prompted many analysts to declare an end to the correction of the past few weeks.

The key piece of news over the past week was the surprisingly strong US employment report showing a stunning 308,000 jobs created in March.

"The final piece of economic recovery is in the process of falling in place. Finally, jobs are responding to economic expansion," said Sung Won Sohn, chief economist at Wells Fargo Bank.

Others noted that the economy may not be as sizzling as the report suggested, and cautioned against betting on higher interest rates soon.

"The strong showing in March payrolls is further proof that hiring conditions are improving. But the gain is overstated, and other readings are mixed," said Citigroup's Robert DiClemente.

DiClemente noted that the unemployment rate, based on a separate survey, edged higher, and that the increasing labor pool means there is still slack in the economy.

The bond market was hammered nonetheless by expectations of higher rates. The yield on the 10-year US Treasury bond jumped to 4.140 percent from 3.843 percent a week earlier and that on the 30-year bond to 4.972 percent from 4.770 percent. Bond yields and prices move in opposite directions.

As for Wall Street, Art Hogan at Jefferies and Co said the market appears to be shifting into a new cycle and that "the downsize correction seems over now."

But he said the market will now turn its attention to corporate earnings news, and will need to see strong results to continue on an upward trend.

But Tobias Levkovich at Smith Barney offered a cautious view, saying overly enthusiastic investors have been pushing prices to levels that cannot be sustained.

"We are hard-pressed to come up with a clear rationale for why investors are going to throw money at the equity market currently," he said.

"Yet, we find many reasons for stepping back and remaining defensively positioned ... In this context, we believe equity investors should remain cautious with 10 to 12 percent further market downside risk by the summer," Levkovich added.

"And this analysis does not even incorporate worries about oil prices, terrorism, or the uncertainty over the upcoming US presidential election."

Goldman Sachs chief strategist Abby Joseph Cohen said she still sees a positive year for Wall Street as it extends its gains from the bear market that ended a year ago. She maintained her forecast that the S&P 500 would hit 1,250 by year-end.

"Much has changed in the past 12 months. The global economy is expanding, corporate profits are rising and investors are approaching decisions not by avoiding risks but by balancing potential risks and rewards," she said.

"Recent geopolitical worries, such as the bombings in Madrid and the contested election in Taiwan, are reflected in markets but do not paralyze investors."
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