Dramatic rally reverses jobs slide

Small-cap stocks took flight Friday, setting aside a historically bleak employment report amid hope that all those gloomy numbers are already priced into the market. If true, then bargain-hunters are snatching up equities relatively close to the lows, getting ahead of the curve on an impending turnaround in the global economic scene. The Russell 2000 (NYSE:IWM) closed up 21.56, or 4.91%, at 461.09, reversing course on a morning rout that saw small caps down 3.5% at the worst point of the day. For the year, the Russell is now down 40%, while the Dow is off 35% and the S&P 500 is down 40%.

This marked the third time in four days that stock market investors chose to dismiss dreary economic data as a non-event, and this time around they did it on the biggest report of them all – the monthly Labor Department report on employment. Looking at the guts of the jobs report, it’s not that easy to dive into stocks with abandon. Here are some ready-made frightening headlines from the report:

* Largest one-month drop in payrolls since December 1974
* Highest unemployment rate in 13 years
* Fifth largest monthly decline in jobs in history

What’s more, it is widely expected that the jobs picture will get worse – not better – 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 . . .

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