Markets made history last week as the Dow set an all-time high above 14,400 and the major indices all posted solid gains, buoyed by strong employment numbers and renewed confidence in the economy. For the week, the S&P 500 gained 2.17%, the Dow gained 2.18%, and the Nasdaq gained 2.35%.

The jobs report was the big market mover of the week. Employers added a greater-than-expected 236,000 workers to their payrolls in February and the jobless rate fell to a four-year low of 7.7%, providing the strongest signal yet that the economy is coming back. However, digging deeper into the jobs data, it’s not all good news. Despite gradual improvement over the past few months, the labor force fell by 130,000 as people dropped out of the job search. Had labor force participation remained at its previous level, the unemployment rate would have held steady at 7.9%. This simply means that the labor market is improving overall, but not everywhere at the same time. While economists were pleased with the news, they caution that the economy still has a long way to go.

On a more positive note, the average weekly hours worked increased from 34.4 in January to 34.5 in February, meaning that Americans are working more hours (and that businesses are seeing healthy demand). Hourly earnings also increased slightly last month. Even better, the overall increase in hours, earnings, and jobs caused aggregate wages to increase 0.7%, meaning that Americans are taking home more money every month. The gain is more than enough to offset January’s payroll tax increase, which is excellent news for consumer spending.

Despite the budgetary headwinds, the first quarter of 2013 is shaping up well. We still need to watch out for a second quarter slowdown similar to what happened in 2011 and 2012, but analysts think that this year might be different. While we are grappling with budgetary issues, the fiscal cliff is no longer ahead of us and housing is no longer a headwind to growth, but a tailwind.

This week’s calendar is relatively light on data, but analysts will be watching consumer sentiment numbers as well as retail sales numbers to determine whether there’s still additional upside. We’re very pleased to see markets picking up, but we want our clients to be prepared for a potential short-term market pullback in the future as traders take profits.