Wall Street bets big on no ill surprise in May jobs report

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How badly does Wall Street want to believe the worst is almost over for the economy?

Let’s see: On Thursday the stock market rallied briskly in the face of 1) ugly first-quarter data on mortgage delinquencies and foreclosures 2) a stunning rebound in the price of oil, which jumped $5.49 to $127.79 a barrel and 3) a pullback in the dollar, after the head of the European Central Bank warned that the bank may raise interest rates soon to combat inflation.

The Dow Jones industrials rose 213.97 points, or 1.7%, to 12,604.45, the biggest one-day gain since April 18.

The rally was broad-based. Small-company stocks were stronger than blue-chips, continuing the trend since mid-March. That shows investors are climbing further out on the risk curve -- something you wouldn’t expect them to do if they feared a deep recession was upon us.

More remarkable is that the bulls would be this bold ahead of Friday’s government report on May employment trends.

As Steve Todd of the Todd Market Forecast in Crestline, Calif., notes, the monthly employment report tends to be ‘the most market-moving of all economic releases.’

The consensus forecast of Wall Street economists is that the economy lost a net 60,000 jobs last month, after a loss of 20,000 in April.

‘The jobs number is going to be huge’ for the market, said Todd Clark, head of trading at Nollenberger Capital Partners in San Francisco. ‘If it’s still in decent shape you can take away the bear case for the economy.’

Or, at least, a relatively small decline in jobs could reinforce the idea that the economy isn’t in danger of unraveling, despite the serious pain the housing market’s woes are causing in many parts of the country, and despite record gasoline prices.

Andy Engel, senior research analyst at investment firm Leuthold Group in Minneapolis, says he figures the economy is in recession, but the stock market is doing what it usually does: It’s already looking ahead to a recovery.

Leuthold turned more positive on the market in mid-May, boosting the weighting of stocks in the firm’s model account from 50% to 60%, Engel said.