A better-than-expected jobs report helped U.S. stocks rally ahead of the long weekend but the unemployment scenario continued to remain grim, signaling the much-expected economic recovery is not going to be smooth.  Worries that the rally has gone ahead of any economic recovery continued to keep a check on sentiments and stocks declined during the first three sessions of last week.  All major indexes started off on a dull note but posted strong gains in the afternoon.          

Following advances in the overseas markets, US stocks are expected to gain at the opening.  The DJIA futures added 79 points for a gain to 9496; the S&P500 increased 9.9 points heading toward a 1023.80 open.  Markets were closed yesterday for the Labor Day holiday.

On Friday, the 30-stock Dow Jones industrial average rose 96.66 points, or 1.03%, to 9,441.27.  The S&P 500 index rose 13.16 points, or 1.31%, to 1,016.40.  The technology-laden NASDAQ advanced 35.58 points, or 1.79%, to 2,018.78.  However, all three indexes ended the week lower.  During the week, the DJIA retreated 1.1% and the S&P 500 was off 1.2%; NASDAQ was comparatively better, easing only 0.5%.   

As stock prices gained, Treasury bonds lost ground.  The yield on the benchmark 10-year note rose 0.09% to 3.44% and the 30-year bond yield rose 0.11 to 4.27%.  On Tuesday $38 billion in 3-year notes is slated for auction, on Wednesday $20 billion of 10-years, and on Thursday $12 billion in 30-years.

Last week, Tax preparer (NYSE:HRB) saw its shares fall after the firm reported a wider-than-expected loss of 39 cents a share.  Apple (NASDAQ:AAPL) shares rose ahead of its media event next week where it is expected to introduce iPod Nano and Touch models that include digital cameras.  Societe Generale sharply raised its price target on the iPhone maker.

Traders return to their desks in a holiday-shortened week with last September’s collapse of Lehman Brothers absorption of Merrill and a government bailout of AIG still fresh in their minds.  Although a lot of water has passed under the bridge since then, traders still remain skeptical about the prospects of a full blown economic recovery.

This week, healthcare and insurance stocks may take a cue from President Obama’s attempt to garner support for his much-talked-about healthcare initiative in a rare joint session of Congress Wednesday.  Remarks from Saudi Arabia’s oil minister that crude markets are “in good shape” indicate further production cuts are not expected at this week’s OPEC meeting.

Moreover, a Credit Suisse (NYSE:CS) report noting, “This is the ideal phase of the economic cycle…There is more of a positive growth surprise to come over the next three to six months,” could be viewed in positive light.  Credit Suisse projected a 13% gain in the S&P500 to 1150 by mid-2010.

Zacks Investment Research