The White House was quick to cheer the rosy employment numbers from the Labor Department earlier this month. And the market responded with a rally. But something doesn't add up.

This week's data may not indicate too much about the U.S. economic recovery, but it was good enough to support bank stocks...

Financials have clearly driven this rally. And it makes sense - this rally is being built on a bailout designed to help banks.

Not only are we failing to get any traction to employment due to the stagnant economy, companies that have screwed up are continuing to shed payroll to get costs in line with their revenues, companies like Bank of America (NYSE:BAC) and Cisco (Nasdaq:CSCO).

The market did not do much yesterday. The indices started the day moving higher, but around noon they fell back and closed in the red.

The decline was entirely expected and needed. Many indices had moved up 6% in two days, so it was natural that they consolidated yesterday, especially with no news.

Now that an actual, much-needed, $450 billion American jobs bill is here, it will be interesting to see how it's treated in Congress.

President Obama's upcoming jobs proposal just might be the final piece of the puzzle to guarantee a huge upswing in gold prices and silver prices.

Oh Standard & Poor's, you've got to be kidding. Apparently the ratings agency is still giving Triple-A ratings to securities backed by subprime loans.

"S&P is poised to provide AAA grades to 59 percent of Springleaf Mortgage Loan Trust 2011-1, a set of bonds tied to $497 million lent to homeowners with below-average credit scores and almost no equity in their properties," the article says.

S&P seems to have forgotten that these mortgage-backed securities defaulted to the point that it nearly brought the world's financial system down. Of course, banks held too many of them, and had leveraged them too much, but S&P was complicit.

But, I guess when you're getting paid -- approximately $1.67 billion in bond rating fees last year -- anything goes.

How badly did investors want to put their cash into safe-havens during yesterday's huge sell-off? Money market rates went negative at one point during the day.

That's right it actually cost you a fraction of a penny to exchange your cash for shares of a money-market fund. And money-market funds are more similar to the dollar than any other the asset in the world.

Treasury bonds did pretty well, too. The iShares Barclays 20+ Year Treasury Bond ETF (TLT) was up 3.5% to $105. It's rallied 10% since July 25. Demand for Treasuries is high, investors aren't just fleeing risk. It's more like a stampede. Not coincidentally, the S&P 500 is down 10% in over the exact same period of time.

The market bears are back. In a kamikaze attack, the bears threw everything they had against the market yesterday - and won. The decline started eight days ago, but in yesterday's plummet there was no shelter and if you owned stock you lost money - it's that simple.

Declining stocks to advancing stocks were about 19 to 1. Down volume to up volume (some of which was us) was an incredible and jaw dropping 1.8 billion to 20 million.

Going into the day, I expected a nice leisurely decline to Monday's low, then stabilization, maybe even a bounce back to 1280. I figured the indices were oversold, and near a reliable support zone. Wrong.

The market rose modestly yesterday. Volume was average and the bulls were able to fend off the strong selling pressure from earlier in the weak. But the indices finished far off the session highs, which shows us the bears are out there.

The indices overseas were mostly lower today, although Europe got a slight pop after JPMorgan (NYSE: JPM) second quarter earnings were announced this morning. JPM stock was also up 3% following that news. The mega U.S. bank once again beat estimates and grew profits. JPMorgan reported $5.4 billion in income or $1.27 per share in the second quarter. That compares with earnings of $1.09 one year ago.

The market was positioned to collapse again yesterday. The indices overseas were decimated overnight and the dollar was in full rally mode while the euro crashed. But instead of another decline, the bulls stood firm for most of the session and prevented the bears from another big day. Sure, the indices were down yesterday but the pain could have been worse.

I continue to view the action of the past couple days as consolidation. And until 1301 is taken by the bears I firmly expect new highs in all market indices.

Yesterday the minutes of the last FOMC meeting were released and QE3 was on the agenda. While nothing formal was announced by the FOMC, the group claimed to be open to another round of easing if warranted by slow economic growth and mild employment growth.

The market soared higher yesterday. I can't say volume was great, but it did increase.

Financials were a big part of the rally, which was great to see because that sector has certainly slumped behind over the past three months.

The big banks popped yesterday after a better than expect ADP jobs number was announced.

JPMorgan (NYSE: JPM), Bank of America (NYSE: BAC), Citi (NYSE: C) and Wells Fargo (NYSE: WFC) rallied 1.7% from that news. The ADP reported that in June 157,000 private jobs were added, which was ahead of the 70,000 widely expected and the 36,000 in May.

There is a budding divergence between economic data and corporate forecasts. We’ve seen a stark deterioration of economic data across the board. Manufacturing surveys have weakened, auto sales were down in May and then, of course, we got the icing on the cake with the pitiful employment numbers last week.

 

Economists and strategists have been falling all over each other as they lower their 2011 GDP estimates. (Of course, Daily Profit readers had a heads up, as we noted the change in the Fed’s outlook after the last FOMC meeting.)

My belief as a researcher and an analyst is that undue speculation in not just the copper market - but nearly every market, including the stock market, currency markets, the bond market, etc. - my belief is that this speculation is being fueled predominately if not completely by the actions of the Federal Reserve. 

The Fed has a mandate, for better or worse, constitutionally or unconstitutionally, to maximize employment and keep GDP growth slow and steady. And now we're seeing the breadth of their power to implement those two goals - they can simply transfer "dollars" from out of thin air into the bond market, into the financial system, into the mortgage market. Those dollars have to go somewhere. Goldman Sachs (NYSE: GS) isn't likely to sit on billions of dollars - they'll put it to work speculating. The same is true of all of the Fed's member banks.

As we saw with the oil markets between 2008 and 2010, when the bets turn against the speculators, the price tends to drop to ridiculous lows. Looking at a copper chart, the same thing happened there too.

The New Unemployment Claims number is usually one of the last indicators to start improving after a recession. But once unemployment claims start to fall, job growth and strong economic expansion are never far behind.

And today, New Unemployment Claims finally broke through the critical 400,000 level for the first time in 2 ½ years.

The weak economic recovery has created a very volatile stock market. Wide swings in investor sentiment give us "it's getting better" rallies and "double-dip recession" sell-offs.

We've enjoyed one of those "it's getting better" rallies that's boosted the S&P 500 85 points, or 8%, from 1,040 on August 31 to a 1,125 close yesterday. The move was supported by improving employment data, better than expected retail sales and spending numbers and as surprise jump in manufacturing activity.

But these days, investors don't maintain their convictions, or stock positions, for long. And economic data is having a hard time building on its momentum.

The stock market rally that started on February 5^th, 2010 appears to be absolutely unstoppable. Bullet-proof. However you want to say it, there seems to be very little downside to stock prices, even after a strong rally.   

 

Now, we are not surprised. I’ve been relentlessly bullish here in Daily Profit. Sure, I may point out some discrepancies once in a while, maybe even shoot a few holes in the financial media’s neat and tidy explanations, but I’ve had us focused on upside targets for a year now, and there’s one main reason: earnings.   

 

This time last year, it was brutally obvious that analysts were seriously underestimating the earnings potential for bank stocks, even after the government changed the accounting rules to encourage profitability.   

 

And in subsequent months, analysts continued to lowball earnings estimates. Companies kept beating them, and the market kept rallying.   

Few numbers have been released with as much fanfare and anticipation as last Friday’s Nonfarm Payrolls number. Is it any wonder that the number was pretty good? Are we surprised that economists across the board are hailing the addition of 162,000 jobs in March as definitive evidence that the economic recovery is picking up steam? 

Employment increased at the fastest rate since March 2007. And it wasn’t all Census workers, either. Government hiring accounted for 39,000 workers. That means private companies hired 123,000 people. 

Employment numbers will continue to look good, as Census hiring will continue into June. But we’re going to need to see continued solid growth from private sector employment.

On Assignment Inc. (Nasdaq:ASGN) has a hire calling, preaching the gospel of contract employment among health-care and technical professionals. Despite the gloomy U.S. jobs picture, On Assignment continues to eke out surprising results.

Rather than trying to find work for everyone - including manufacturing or manual labor that Manpower Inc. (NYSE:MAN) and others provide - On Assignment has chosen to aim higher. It focuses on specialty skills for short-term and sometimes permanent assignments in health care, including physicians and nurses, life sciences and clinical research, engineering and IT staffing. It has just a smattering of international operations.

Founded in 1985, the Calabasas, Calif., company has 60 branches in the United States. On Assignment went public 16 years ago.

Of the five analysts surveyed by Thomson Reuters, two have On Assignment rated "strong buy," two call it a "buy," with the other ranking "hold." The median price target is $11.50 - just above the 52-week high of $11.42, hit on Aug. 22. On Assignment dropped to $4.32 on Jan. 24, but closed Friday at $9.27, down from its recent highs but up roughly one-third year-to-date.

"The overall job market has not been good for a while, but On Assignment has been squeaking out some improvement each quarter," said Tobey Sommer, a SunTrust Robinson Humphrey analyst who rates the stock a "buy," in an interview.

For the quarter ended June 30, On Assignment beat analysts' expectations, as revenue increased 8.5% to $156.1 million, and net income more than doubled to . . .