An economy driven by consumer spending needs its consumers to have jobs -- and access to credit. Now that April job losses came in far better than expected and the stress tests are behind us, the market is reacting as if the economy has stabilized.

So is the worst behind us? Yes -- with a "but," experts say. Bad news is not the same thing as good news, even if it is "less bad" than expected. More important to investors is that the recent market rally might be getting a bit long in the tooth, despite the jobs data, stress test and better-than-expected first-quarter earnings.

"The market's reaction is a little bit overdone," says Richard Moody, chief economist at Forward Capital. "The jobless data and other data suggest that economy's pace of contraction is slowing, which is different from stabilizing."

The bottom line is that the economy can't be said to have stabilized until it's done contracting, Moody says, and that's something he (and the consensus) doesn t expect to happen until the third quarter.

And as for the bank stress tests?

"The financial sector has really gotten ahead of itself," Moody says. "Sure, the stress test is over, but banks are still expecting considerable loan losses in their portfolios."

That's not to say the market is wrong to embrace "less bad" news. Economist Robert Brusca, head of Fact and Opinion Research, sees the latest jobs data as pointing to a much stronger pickup -- and one that should occur sooner rather than later. "I think it's going to be a spirited recovery," he says, "and not so much of a drawn out affair."

True, the federal government's recent hiring in advance of next year's census distorts the jobs numbers, but the underlying data remain encouraging, Brusca says.

"Look at private-sector jobs you have a very clear turn with the biggest job losses occurring in January, and smaller progressive improvements since then," the economist says. "Those are good metrics. The only bad thing is the continued and sharp rise in the rate of unemployment, but that's a lagging variable. Rising unemployment is really water under the bridge."

There are also significant signs of optimism emerging from first-quarter earnings season, which is nearly at an end. It was ugly earnings season, to be sure. The S&P 500 is still forecast to post an earnings decline of roughly 35%, according to Thomson Reuters.

But it was not nearly so bad as the market and the Street feared -- and that's going a long way toward fueling stocks. With nearly 70% of the S&P 500 having reported first-quarter earnings, the positive earnings surprise stands at 9.5% above Street estimates, said Ed Yardeni, president of Yardeni Research, in an email.

That's the best reading ever and the highest since the first quarter of 1988 and leads Yardeni to conclude that the bear market in earnings probably ended in the first quarter. However, a contraction in forward price/earnings multiple could temper upside for share prices, despite better earnings.

The upshot? "A range-bound market seems more likely than either a bear or a bull market for a while, though I see more upside than downside down the road," Yardeni says.