Today's Market Update with...

Harvey Katz, Value Line's Managing Editor

Stocks rolled to a strong gain yesterday, with the 204-point surge in the 30-stock Dow Jones Industrial Average fueled principally on optimism that yesterday's larger-than-expected drop in weekly jobless claims would be a positive harbinger of things to come as the government prepared to release its monthly employment and unemployment data for October this morning.

The bulls, it would appear, guessed wrong. Indeed, the surge above 10,000 in the Dow may not initially be added to this morning if current action in the futures is sustained. That's because the government reported that the nation lost 190,000 jobs last month, some 15,000 more than expected, while the unemployment rate surged from 9.8% to 10.2%. The consensus had been for a gain to 9.9%.

Meanwhile, the bulls who have pushed the Dow to 10,000 for the second time in the past few weeks have continued to see the economic glass as half full rather than the proverbial half empty. They are also upbeat on the outlook for corporate profits. The latter point also received support late Wednesday as networking giant Cisco Systems posted better-than-expected results and that stock rose, in response.

As for our perspective, we do not quarrel with this optimism, although we do expect to see some dour economic news going forward--such as this morning's disquieting employment report. However, valuations are not cheap, even after the market's recent pause, and we could very well see a renewed round of profit taking at anytime, especially if the forthcoming economic and profit news is not fully supportive.