Recovery for stocks -- not for jobs
Shares of Monster Worldwide, several recruiters and staffing firms have been on a tear. But the rally may be short-lived as the labor market remains weak.
NEW YORK (CNNMoney.com) -- The labor market is still a mess, but you wouldn't know that from the way investors are reacting.
Stocks finished modestly higher Friday, despite the fact that the unemployment rate rose to a 25-year high. More than 2 million jobs have been lost in the first three months of this year.
Considering that the market has rallied sharply since mid-March on hopes that the economy may have reached, or is close to hitting, bottom, you'd think that the March jobs report would be a perfect excuse for a massive sell-off, just as the GM (GM, Fortune 500) and Chrysler potential bankruptcy news was on Monday.
However, what's even more interesting about the market's recent surge is that shares of several companies whose fortunes depend on a healthy job market have been on fire as well.
Shares of online job site operator Monster Worldwide (MWW) are up nearly 60% since mid-March. The stock of executive recruiter Korn/Ferry International (KFY) has shot up about 20% while shares of rival Heidrick & Struggles (HSII) has gained almost 50%.
And shares of staffing firms Robert Half International (RHI, Fortune 500) and Manpower (MAN, Fortune 500) are up nearly 40% and 50% respectively since mid-March.
Are investors in these stocks pricing in a rebound in the jobs market sooner than most people think?
Or are the big moves in these stocks just a reflection that the jobs market, while awful, may simply be less awful than people expected and that it will remain that way for the foreseeable future?
It's probably the latter. After all, these five stocks, as well as other staffing companies like Kelly Services (KELYA, Fortune 500), MPS Group (MPS) and Spherion (SFN), are all still down significantly over the past 12 months. So even with the rebound in the past few weeks, the stocks are well off their highs.
"The market seems to be seeing some signs of stabilization, a slower rate of decline. That's helped a bunch of the stocks," said Tobey Sommer, an analyst with SunTrust Robinson Humphrey. "But from a fundamental standpoint, things have not changed all that much. The situation is still pretty bad."
Another analyst agreed that the big move in the past month may be a bit premature.
"The jobs data has been very inconsistent so the situation still warrants caution," said Jim Janesky, an analyst with Stifel Nicolaus."The staffing stocks may not test their lows but they are due for a pullback."
Sommer said that it does make some sense for Monster to start to rally a bit since once the job market does begin to improve, Monster would likely benefit before other companies. That's because companies would start listing job openings first before the actually start hiring.
Even so, he expected the company's stock to make a more significant move in the third quarter of this year.
But he argued that it's too soon for companies specializing in temporary staffing like Robert Half, or recruiters such as Korn/Ferry and Heidrick & Struggles, to begin rallying ahead of an anticipated recovery in the labor market.
And both Sommer and Janesky said they were worried about some of these companies' exposure to the European labor market, which is now starting to show signs of strain as well.
"Europe generally lags the U.S. and contraction in the labor market abroad is going to negatively surprise people the way it did domestically last fall," Janesky said.
Simply put, even if other parts of the economy, such as the housing market, begin to bounce back, the labor market may not improve as quickly. The jobs market is often viewed as a lagging indicator of economic health.
Keep in mind that even though the last recession was relatively brief -- lasting just eight months in 2001 -- the job market didn't fully recover until the summer of 2003. As such, Janesky isn't recommending any of the employment-related companies he covers just yet.
"We're still waiting for stabilization in the labor market. That is really the key," he said.
Analysts quoted in this story do not own shares of the companies mentioned and their firms have not performed investment banking services for them. 
