WEEK IN REVIEW

U.S. markets are going through a transition from being liquidity driven to a rally based on fundamental data and this has proven to be a very bumpy ride. Investors are trying to figure out whether we are now pricing in earnings and the jobs situation or whether it’s still the Fed leading markets. So we’re slowly taking off the training wheels and that makes things a little less certain. The Fed stimulus and better-than-expected earnings have propelled the bull market in U.S. equities into a fifth year and driven the S&P 500 up 137 percent from a 12-year low in 2009. The benchmark gauge has dropped 4.1 percent since closing at a record high on May 21, the day before Fed Chairman Ben Bernanke suggested the central bank could curtail its $85 billion in monthly bond buying if the job market improves in a “real and sustainable way.” Markets slid broadly as investors grew concerned about the effectiveness of Japan’s economic stimulus efforts and the chance that the US Federal Reserve might soon end its major easing program. After gaining 68% from November to 22 May, Japan’s volatile Nikkei Stock Average has lost close to 20% in less than three weeks. Globally, stocks tumbled as sentiment became gloomier. Contributing to the bearish mood were reports indicating contracting economic activity in China, the United States and the eurozone. The US jobs report, released Friday morning, came in at a gain of 175,000, a continuation of the labor market’s steady improvement this year. The continued modest pace of job growth could be ideal for the US economy. This so-called Cinderella scenario would see the US economy continue to grow at just the right pace — not too hot, not too cold –– so that the Fed does not end its quantitative easing program. Markets responded favorably to the news. Up 0.7% on the week, the Dow Jones Industrial Average advanced as much as 207 points, and was lately up 180.04 points, or 1.2%, at 15,220.66, with insurer Travelers Cos. Inc. leading the pack, up 2.3%. Rising 0.5% from the prior’s Friday’s finish, the S&P 500 index added 16.27 points, or 1%, to 1,638.83, with consumer discretionary pacing gains that included nine of its 10 major industry sectors. The Nasdaq Composite climbed 37.13 points, or 1.1%, to 3,461.15, leaving it up 0.2% for the week.