Has Friday’s Surge by the US Stock Markets Been about the ‘Positive’ Jobs Report?

That’s how media paints it.

This Bloomberg headline serves as an example “Dow Posts Longest Weekly Rally Since October After Jobs Report”

Here is an excerpt: (bold emphasis mine)

U.S. stocks rose for a fourth week, giving the Dow Jones Industrial Average the longest rally since October, as better-than-forecast jobs data erased a four-day drop amid investor disappointment with global stimulus efforts.

Technology companies climbed the most among the 10 industry groups in the Standard & Poor’s 500 Index. Apple Inc. (AAPL) jumped 5.2 percent amid speculation the company may join the Dow, while First Solar Inc. (FSLR) soared 18 percent on surging profit. Better- than-expected earnings at MetLife Inc. (MET) and Frontier Communications Corp. (FTR) sent their stocks up at least 9 percent. Knight (KCG) Capital Group Inc. plunged 61 percent after a trading error spurred a $440 million loss.

The S&P 500 added 0.4 percent for the week to 1,390.99. The benchmark index for American equities extended its 2012 gain to 11 percent. The Dow climbed 20.51 points, or 0.2 percent, to 13,096.17, the highest level since May 3.

“We’ve come to fall into this trap if you will, when it comes to central banks, we want something from them immediately and if we don’t get it, the market gets disappointed,” Mark Freeman, who oversees about $13 billion as chief investment officer at Westwood Holdings Group Inc. in Dallas, said in a phone interview. “At the end of the day, the fundamentals matter, and the fundamentals are doing OK.”

Equities reversed weekly losses on the final day, with the S&P 500 jumping 1.9 percent, after a Labor Department report showed American payrolls climbed more than forecast even as the jobless rate unexpectedly rose. The benchmark index slumped 1.5 percent in the previous four days as European Central Bank President Mario Draghi and Federal Reserve Chairman Ben S. Bernanke failed to reassure investors on immediate efforts to bolster the economy.

The unemployment data ROSE despite the better than expected payroll figures? How’s that?

That’s because many people dropped out of the labor force.

From CNN Money: (bold emphasis mine)

Employers said they added 163,000 jobs in the month, according to a Labor Department report released Friday, much better than the 95,000 jobs economists had forecast.

But at the same time, the unemployment rate unexpectedly rose to 8.3% as households claimed they lost 195,000 jobs.

The government's monthly jobs report comes from two separate surveys: one that looks at employer payrolls, and the other which questions households. Those two reports went in opposite directions in July, confusing the overall reading on the job market.

"There are two sides of this report, and unfortunately both sides are not telling us the same thing," said Ellen Zentner, senior U.S. economist for Nomura. "This is a report showing the economy expanded at a greater pace in July than in June, but households are still telling us they're in pain.

How will “fundamentals matter” if the US economy and the financial markets have been heavily dependent on the Fed's steroids, as if to imply that monetary policies have neutral or only positive effects on the economy and the markets? Such observation is unfounded: the US Fed's balance sheets have ballooned but unemployment and economic growth remains sluggish.

Yes the CNN interprets the report as “confusing” even as the markets allegedly saw them as substantially positive.

Some positive developments eh?

Yet the breakout by the US stock markets seem to lack support as seen from internal market dynamics.

Bespoke Invest has a nice insight: (chart theirs too) [bold mine]

While the S&P 500's price has been in a steady uptrend, cumulative breadth for the index has actually been pretty weak. As shown in the lower chart, with each successive higher high in the index, breadth has actually been making a lower high.

Typically, it is optimal to see breadth trends confirming the moves in price, but the recent narrowing of breadth is indicative of fewer stocks participating in the rally, and likely a sign that more managers are underperforming.

“Fewer stocks participating in the rally” means two things for me, one the insufficiently supported rally could signs of developing weakness rather than strength; although most of the buying seems to have been directed at index heavyweights—Could the Fed or proxies of the Fed be behind this (too big to fail banks or the Plunge Protection team), ala the Bank of Japan via ETFs?

And second such could also be indications of distribution days.

Table from Bloomberg.com

Bottom line: I would put more weight in the interpretation of Friday’s hefty index-based US stock market rally as a “sympathy move” to the monster rebound (see the above table) by the Europe’s equity markets based on the mounting expectations of the imminent unveilment or announcement of the ECB-EU’s big bazooka.