Good Friday afternoon folks. I know we're all ready to get the weekend started, so I'll get through what we need to get through real quickly today. That's (1) a closer inspection of this morning's employment data, (2) a Q2 earnings season update, and of course, (3) a look at what's next for stocks after factoring in today's movement. Let's just start at the beginning. A Schizophrenic Unemployment Picture Like I mentioned to you yesterday, the unemployment story you usually hear from the media every month isn't even close to being the complete picture. I gotta give credit where it's due though... this time around, the media did a pretty fair job of pointing out how the unemployment rate's dip to 7.4% (from 7.6%) was misleading. First and foremost, the people who are saying the labor market is getting better aren't blowing smoke - it is getting better. It's getting better at a snail's pace, however, and stumbling here and there en route to better days. The good news is, 162,000 new jobs were created last month. That's part of the reason the unemployment rate fell to 7.4%. The bigger part of the reason the unemployment rate fell from 7.6% to 7.4%, however, stems from the fact that 37,000 people took themselves out of the labor force and are no longer counted when calculating the unemployment rate (i.e. a bunch of them have seen their benefits expire, and they've given up on finding jobs.) Most of these people do want jobs though. In fact, the DOL's polling determined that in July, another 39,000 people who are not currently counted as part of the labor force do would indeed like to have a job. Looking at it from another angle, there were 144.058 million people working in June, and now there are 144.285 million employed people in the United States. That's 227,000 more employees in July than we had in June. The DOL's numbers also say 263,000 fewer people are now considering 'unemployed.' [Yeah, not all the math jives, which is why you have to take a bigger-picture look when studying the numbers.] The bottom line is, the employment/population ratio rolled in at 58.7% for July, just like it did in June. That's a tad better than the low of 58.5% seen in March, and a little better than the ultimate low of 58.2% seen in November of 2010. So, we're on a recovery path, but it's not at a great pace. That ratio was around 63.0% between 2003 and 2007, when things wee healthy. Oh well, even tepid progress is better than the alternative. Earnings Fizzle, & Trader's Don't Care As promised to you on Thursday, a quick update on how things are unfurling on the earnings front now that we're about 70% through earnings season. It's.... meh. As of the close of business on July 31st (Wednesday), the S&P 500 is on pace to earn $26.41 for the second quarter. That's a sizable drop from the projections Standard & Poor's had for us just a little over a week ago, when the number was $26.66. Sadly, that's right back at the original forecast of $26.40 that we were seeing right before earnings season started. Said another way, the market isn't going to "beat" for Q2. The outlooks for the second half of 2013 and all of 2014 have also been dialed back. Given that, it's surprising the market's been able to do as well as it has lately. The good news is, the S&P 500 is still on pace to beat Q2-2012's earnings of $25.43, by 3.8%. You gotta figure the market had mentally priced that in - and more - by the time earnings season got started a month ago though. As for the beat/miss ratio, we're still at the levels we saw a week and a half ago: 66% of the S&P 500's companies that have reported so far have topped estimates, 25% missed, and 9% met estimates. That's a little sub-par. All in all, you'd be hard-pressed to say this has been a good earnings season. Investors don't seem to mind though, remaining certain the Federal Reserve's stimulus will remain in place as a crutch for quite a while longer. Of course, given the weak employment growth, that may not be an entirely bad bet. As for any shining stars, consumer discretionary stocks have managed to beef up their year-over-year earnings by 17.3%, but it's the financial sector that's been the real winner for Q2's earnings season. The financial have grown income by 25.3% in the second quarter, doing most of the work behind the broad market's 3.8% earnings improvement. A whopping 70% of the financial sector's names have topped estimates too, which amazingly enough isn't the best beat rate. That honor belongs to the healthcare sector; 76% of its stocks topped outlooks. The technology sector is running a close second, with 75% of its names managing to beat earnings estimates for the second quarter. The problem with healthcare and information technology is that even though they had a bunch of companies do better than expected, their bars were set very low. The healthcare sector only increased income by 2.4%, and the tech sector has collectively posted a 4.5% dip in year-over-year earnings. If the strong results from the financial sectors seems familiar, it may be because we told you it was going to be a big earnings season winner back in the July 10th newsletter, "Three Must-Have Industries for Third Quarter." Too Giddy For Our Own Good? Despite the gain, it's pretty clear the bulls were hesitant to tack on more gains today, fully aware that yesterday's move has already pushed the market's luck. There's not a lot I can add there. Like I told you yesterday, the bulls may need to cool off a little bit here, regroup, and then take another swing at crossing above the upper Bollinger bands. The buyers tested those upper limits again today, and again, didn't clear those hurdles. As long as any pullback doesn't drag the indices under their recently-made floors, the bulls will still remain within sight of a strong breakout move. For the NASDAQ Composite, that floor is 3579, while the ceiling is the upper band line (and today's close) at 3689. Don't worry about anything that happens inside those lines. It's a move outside of those lines that will be worth watching. There is one red flag I see, however, that I have to point out. I don't know how many of you guys follow the Volatility Index (or VIX) on a regular basis, but if you don't, you might want to. We look at the VIX from time to time in the newsletter, using it as a gauge of how traders are feeling about a rally or a pullback. In fact, it's often referred to as a 'fear gauge', pointing out when traders are getting unusually confident about a rally, or unusually pessimistic during a selloff. Ironically, when that fear or optimism hits an extreme level, it usually means that corresponding pullback or rally is nearing its end. And yes, it works. It may not be laser precise or perfect, but it works. Care to guess what hit multi-week lows today, and hit its lower Bollinger band in the process? The VIX, telling us that confidence surrounding this rally has reached dangerously high levels. It's possible that just running into the weekend could have pushed the VIX lower. But, with volume being relatively high today (for a Friday), it's tough to chalk up the VIX's move lower to mere "unusual circumstances." It matters, because with the VIX at its lower extreme, the market's vulnerable to a pullback here. In fact, you can see since March how each time the VIX moved under 12.30 lately, it at least presented some trouble for the stocks. Throw in the fact that the S&P 500 is also dancing with its upper Bollinger band at 1716, and there are several reasons the market could get tripped up here. You know what though? Let's not worry about it for right now. It'll all be here Monday when we get back.