Wall Street's Exuberance May Be Misplaced

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The stock markets' energetic reaction to Friday's labor statistics may have been misplaced. Both major U.S. stock exchanges met the news of the slowest job growth in about a year with immediate spikes, with NASDAQ surpassing 4,900 for the first time and the Dow jumping more than 200 points by late afternoon. Economists see the the slowdown as a sign that the economy may finally be cooling, which will dissuade Fed chairman Alan Greenspan from initiating some of the major interest rate hikes he hinted at during recent testimony before Congress. In January, the economy created more than 380,000 jobs, a nine-year record. According to the figures released today, it added just 43,000 jobs in February, while the unemployment rate edged up from 4 to 4.1 percent.

"While this news is good for Wall Street," says TIME Wall Street analyst Dan Kadlec, "the market may have overreacted. One month really isn't enough to feel good about." Kadlec's assertion is backed by the fact that much of the slowdown comes from job contraction in the construction sector, which traditionally sees a slump in winter months. Still, Wall Street seems to think the news means the Fed will act more gently. "The big fear holding the Dow down until now," says Kadlec, "was that the Fed would push forth a giant interest hike. The thinking now is that the next hike will probably only be a quarter percent."