The market was interesting today, from the standpoint of its response to economic news. It was particularly instructive to newer investors who are trying to understand the relationships of market movements to news, and was useful even to more seasoned investors by reminding them of what moves markets.

The big news was the employment report for May. Manufacturing jobs were down 23,000, due to the turmoil in Asia which of course reduces their ability to import our goods. This cheered bond market traders, as our slowing manufacturing sector should put a damper on any thought the Fed may have about increasing interest rates at its next meeting. When workers lose their jobs and are stacked up like trash bags in the alley, the bond market knows that all's well in the world. They responded to this soothing news by bidding up the 30 year bond to where the yield fell to 5.78%.

But wait. In this something for everybody news day, even though manufacturing jobs were down, we learned that retail and government jobs were up. In fact, non-farm payrolls were up 293,000, putting unemployment at a many-year low of 4.3%. The stock market bulls took this news and ran with it, as so many people working should mean good business and good profits, as the consumer sector is about 2/3 of our economy.

The bottom line is that even with the market walking on eggs, it isn't going down any time soon as long as inflation and interest rates remain favorable, and profits are good. We get enough negative earnings surprises to keep this market from roaring ahead, and enough good news to keep it from having any big drop. This condition should continue until July, when we see what second quarter earnings look like. In the meantime, act conservatively and don't worry about all these unknowns. It's better to be in the market than out, and I'm betting that the U.S. as a safe haven for money as well as our own people saving for retirement, will mean ultimately higher markets. Stay tuned.

The Market Pro - June 5, 1998