Opportunity or more despair?

That was one heck of a “feel-good” rally Friday in the stock market. After that dreadful monthly employment report, there were plenty of truly awful headlines that could have dominated the financial landscape for quite some time. Thing is, those headlines just don’t get written when the market rallies 4%.

Friday’s recovery marked the third time in four days that stock market investors chose to dismiss dreary economic data as a non-event. I’ve talked often in past columns about the power of “fading” the news, and this time around the market did just that on the biggest economic report of them all. Looking at the guts of the jobs report, it’s not that easy to dive into the buy-side of stocks with abandon. Here are some ready-made frightening bullet points from Friday’s report:

* LARGEST ONE-MONTH DROP IN PAYROLLS SINCE DECEMBER 1974
* HIGHEST UNEMPLOYMENT RATE IN 13 YEARS
* FIFTH LARGEST MONTHLY DECLINE IN JOBS IN HISTORY

But, as we already noted, those headlines didn’t make the cut when the stock market reversed course Friday afternoon and shot higher. And it’s not like all these companies that are limping along right now are going to go on a hiring spree next month to celebrate the arrival of a New Year. In fact, it is widely expected that the jobs picture will continue to deteriorate over the next couple of months. So, why did the stock market treat all this bad news as a buying opportunity? Because there is a wide-spread belief that the market has already priced in all of these dreadful economic reports and that upside potential exceeds downside risk. Maybe it’s just hubris, but maybe – just maybe – it’s true inspiration.

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