As I mentioned the other day, the past couple of years have seen a slowdown from a strong first quarter to a weaker second quarter, and it seems like this year will be no exception.

This morning’s employment reports were a serious disappointment. Job growth dropped across the board, with an increase of 88,000 in nonfarm payrolls—down from 268,000 in February and less than half the expected 190,000. Although the decline was partially offset by upward revisions in the previous months, there’s no denying this is a significant letdown. Adding to the bad news was a slowing in wage growth, from 2.1 percent to 1.8 percent on an annual basis, with wages staying flat month to month.

U.S. stock markets continue a bull run

For the past couple of years, we’ve seen a strong first quarter followed by a much weaker second quarter. Initial signs suggest that the pattern may continue this year as well. Should we expect that—and, if so, what would it mean?

First, the good news: the first quarter was very strong. Economists are estimating that growth could have been as strong as 3 percent, which is well above expectations. Private employment continued to grow, with signs of an increasing growth rate over the past year, while government employment recovered somewhat after a tough fourth quarter, as shown in the chart below.

First of all, credit where due: today’s title came from David Rosenberg of Gluskin Sheff, a terrific economist whom I read daily. I laughed the first time I saw it, but per yesterday’s post, I’ve come to believe that it has real applicability to most client portfolios.

The larger point here, though, is that the new new normal we now live in has forced us to reexamine many assumptions. To the extent that portfolios are based on how things were, and not how things are, we may be in the wrong place. The title above is a great way to express that.

One of the perennial questions in the investment world over the past couple of years has been “When are interest rates going to take off?” Very soon now has been the consensus—but it hasn’t happened yet. I’ve been as guilty as anyone, although I’ve tended to say something like, “Well, about 12–18 months from now.” I’ve been saying that for the last three or four years.

Mind you, it is likely that at some point everyone will be right, and interest rates will head up. I started calling the real estate market overpriced in 2005, for example, and I was wrong for several years—until I was right. I wasn’t the only one, of course, but you can be wrong for a while before you’re eventually right. Being early, especially too early, is wrong, though.

In the absence of a single overarching theme today, I thought I’d hit a bunch of smaller points that are important but don’t warrant individual posts.

Cyprus

The housing recovery continues to become more mainstream. As a front-page article in today’s New York Times announces, “Housing Demand on Rise, Builders Race to Catch Up.” Hard to get more mainstream than that.

Now that the recovery seems to be official, it’s time to dig a little deeper into the story. Housing can boost the economy in many ways, not all of which are readily apparent.

This will be a short post because I’m down in New Orleans at the Chairman’s Retreat conference. Commonwealth’s conferences offer absolutely wonderful content—my “Good Habits” post a while ago was based on an earlier one—and are a great deal of fun because of the people who attend.

I can’t focus on this right now, though, because Europe has come back with a vengeance as a risk factor. A bailout for the Cypriot banking system has been proposed, one that would whack individual depositors for the first time ever.

The recovery continues. Employment figures keep improving, wages are edging up, and the unemployment rate is dropping. At some point, the Fed will have to make a decision to start pulling back, and that could be a problem.

We’ve hit a record with the Dow and are getting very close with the S&P 500. Excitement is building, and the expectation is that stock prices will continue to rise. They may, for a while, based on the psychology alone, but as I discussed in the CFA Institute post last week, the financial fundamentals have to come into play at some point.

Ultimately, for a market rally to be sustainable, earnings per share—the metric that defines the financial benefit to shareholders—has to increase. The question now is whether the current rally is actually based on increases in earnings and, if so, whether that growth can continue.