Earlier this year the stock market in the United States had moved up more than 60% from its low, based largely on the hopes of a strong economic recovery. Fast forward to June 2010 and the market is now in a correction and has lost about 13-14% of its value in the last few weeks. Why has the market reacted so violently in the last few weeks? The single biggest reason for this drop in value is clearly the lack of investor confidence in the economic recovery.

The most recent economic numbers are still better than they had been a year ago, but they are far short of what most had been hoping for. Last week is a perfect example of the level of disappointment that the current economic numbers are bringing. Many economists were expecting 550,000 or 600,000 jobs created, but in reality the May employment report was weak. The census hiring made the number look good, but the private sector created a scant 41,000 jobs in the month. The day before the retail sales figures showed that the consumer isn’t diving back into the economy like many had hoped. The news wasn’t terrible, but it was much less encouraging than many were expecting.

The flash crash of May 6th also hurt investor sentiment and the last thing this market could afford was a bunch of scared individual investors. The summer doldrums is now getting ready to become a more important factor, so don’t be surprised if volume is low in the weeks and months ahead.

The bottom line here is that it is absolutely clear now that there is no V shaped recovery taking place. The recovery isn’t completely dead, but it is on much weaker footing than many thought it might be at this time. The hope here is that this market consolidation will lead to a longer-term uptrend in stocks and the economy, but for now the disappointment is bound to weigh on results in the short-term.

Today the stock market is doing exactly what I would expect, sitting back and waiting to see what comes out of the big employment number tomorrow morning. I think wise investors should do exactly what the market is telling you to do, wait and see exactly what the employment picture shows. This goes for tomorrow’s report, which will let us know about December, as well as the reports in the coming months that will show us the picture in early 2010. As I have stated to readers of this blog many times in the past, I simply do not believe in the notion of a “jobless recovery.” I truly believe that any real recovery must be accompanied by a strengthening job market so that the consumer can feel more confident about their current situation and future prospects.

What kinds of things should you look for in the employment data to see if the trends are starting to look better or not? Look at the beaten down sectors such as manufacturing and see if there are any signs of life. Also, take a look at things like average wages and see if they are beginning to pick up at all. Sometimes the top line number of 10% unemployment rate or whatever it may be gets a little too much recognition in my opinion, since that doesn’t account for those who have stopped looking for a position. The trends have gone in a solid direction with smaller job losses of late, but we will definitely need to see some sectors other than the government and healthcare adding jobs for the market to continue its recent climb.

The bottom line is every single jobs number will be vitally important to the market for the next few months. As an informed investor I strongly suggest you start parsing through the numbers and not just looking at the top line!