Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

General Electric Company (GE), Caterpillar Inc. (CAT): After Dow 15,000, What’s Next for the Market?

For years, the unemployment picture has held back optimism about the economy’s recovery. Even as the stock market soared and companies saw greater business activity, the inability of the economy to produce ample numbers of jobs weighed on sentiment. That’s why today’s report from the Bureau of Labor Statistics that the U.S. economy produced 165,000 new jobs was so important, and because the number beat expectations by about 25,000 jobs, markets soared. The Dow Jones Industrials soared 172 points, surpassing the 15,000 mark, by 10:55 a.m. EDT. The S&P 500 followed suit with an even larger percentage gain that sent the index above the 1,600 level for the first time ever.

Clearly, investors see the jobs report as evidence that the economy has turned the corner. The fact that cyclical giants Caterpillar Inc. (NYSE:CAT) and General Electric Company (NYSE:GE) are among the Dow’s biggest winners today — they have gained 3.1% and 1.8%, respectively — shows the extent to which people are banking on an economic recovery, not only in the U.S. but also in harder-hit areas of the world such as Europe. Both Caterpillar Inc. (NYSE:CAT) and General Electric Company (NYSE:GE) need a marked improvement in global conditions to support their stock prices. Given the importance of the U.S. in the overall global economy — especially on the consumer front, which is arguably most directly tied to employment conditions — it’s reasonable to conclude that better domestic jobs numbers will support economies worldwide.

Caterpillar Inc. (NYSE:CAT)Credit: Caterpillar Inc. (NYSE:CAT)

However, keeping perspective is important. In the grand scheme of things, 25,000 extra jobs isn’t enough to justify such a huge stock-market move. Rather, it’s the assumption that employment growth will continue that’s driving stocks to new record highs. Yet as recently as last month, a weak jobs report threw cold water on that theory, calling the entire recovery into doubt.

Moreover, investors must not ignore the difficult path ahead of returning economic policy to normal. Around the world, central banks have supported markets with low interest rates and other stimulus measures, with India joining the parade earlier today by cutting rates by a quarter-percentage point. The big question for the future is how markets will respond when those extraordinary measures start to disappear, and the challenge for central banks will be to withdraw from programs like quantitative easing in an orderly and deliberate manner to avoid any mass exodus from the stock and bond markets.

Today’s jobs report had some good news for those who have suffered from unemployment and underemployment. But it’s far too early to conclude that the report marks a permanent increase in the pace of job creation, and until that comes, the stock market appears to be getting way ahead of itself. If future news contradicts the rosy picture that investors see now, the markets could quickly reverse their recent gains.

The article After Dow 15,000, What’s Next for the Market? originally appeared on and is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool owns shares of General Electric Company (NYSE:GE).

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.