Reality sets in
Economic news was not particularly bad this week. It generally confirmed that the economic recovery was in place. However, equity investors had believed that economic growth would be stronger at this point and that it would generate much more positive cash flows. In fact, the economic recovery is generally in line with predictions and in line with expectations of Fed officials. Fed Chairman Alan Greenspan noted on more than one occasion that this recovery would be modest by historical standards. Yet, it seems that equity investors had ignored these remarks and instead hoped and dreamed for a much stronger rate of growth. Now it seems that they are disappointed. Markets had a lot of negative trading sessions this week. Friday was generally negative for the markets, but the Dow and the Russell 2000 at least managed to hold above last Friday's close. Tech stocks were in the dumps as the Nasdaq fell sharply over the week.

Bad news is goods news for Treasuries
Treasury yields fell further this week as several of the economic indicators, including the employment situation, came in below expectations. Weak economic news is usually favorable for bond markets because it means that the Fed is not likely to start tightening credit conditions. Indeed, the set of news that was reported this week, particularly April's jobs report, will keep the Fed on hold at Tuesday's FOMC meeting -- and probably June's FOMC meeting as well.