In the modern world, it seems, there are two sides to every story. Politically, the divide is partisan and bitter, and even in financial markets, which one would think are more about fact than opinion, there are bull and bear cases to be made for almost every bit of news.

Maybe it is just nostalgia that comes with old age, but it seems to me that there once was a kinder, gentler time when a jobs report such as we saw this morning could only be interpreted as good news.

Now, however, the market reaction to what can only be seen as a good old-fashioned blowout report is questionable. How traders and investors react to this news is in doubt, and what form the reaction takes could well tell us what to expect for weeks if not months to come.

Expectations were for job gains of around 176,000 in December, but non-farm payrolls actually increased by a whopping 312,000. Even better news in many ways, wages increased by 0.4% month over month and 3.2% from a year ago, the most since April 2009. Even the “bad” news, an increase in the headline unemployment rate from 3.7% to 3.9% is clearly a result of more people joining the workforce, which is a positive thing.

As can be seen from the 1-minute chart for S&P futures, the market didn’t exactly cheer the news. The initial reaction was a drop, followed immediately by a bounce back, and we now look set to open right around where we were before the release.

The reason for the lukewarm response to such great numbers should be familiar enough by now. Of course, they show a welcome economic strength in America, but they also make it more likely that the Fed will continue on the path of rate hikes, something that the market views as a negative. Over the next few days we will see which of those opposing views dominates thinking, and that will tell us a lot about what to expect going forward.

The thing is, both sides of the argument have merit.

A robust jobs market is nothing new; it has been the case for most of the last decade or so as the U.S. recovered from the recession. What is new is that is now translating into strong wage growth. It sets up an immediate future where consumer confidence and spending increase, driving strong growth.

On the other hand, that is the kind of growth that the Fed has been attempting to temper with gradual rate hikes. The fact that wages are now being forced upwards is, from the Fed’s perspective, evidence that they are doing the right thing. The economy can obviously handle what they have done so far and, if anything, they aren’t doing enough to slow things down.

As is so often the case, therefore, the market reaction will come down to sentiment. Which of those will traders see as more important?

Logically, the positive message should dominate. The current GDP growth rate of 3.4% is higher than we saw in the early years of the recovery, but from a historical perspective, not so high as to be concerning. Even if this report shows conditions that point to an increase in that number, it just means that even if the Fed does raise interest rates a few times this year the economy is positioned to take it all in its stride.

Still, for the last three months, the focus has been entirely on the bad news. The Fed’s possible actions have been viewed through the prism of fear of a global slowdown and worry about the trade war with China. In that context, evidence of temporary economic strength is a dangerous thing.

If that way of looking at things continues to dominate, and we see continued volatility today and in the first couple of days of next week, look out. As long as objectively good news is seen as bad, the rout will continue. Or it could be that this report will be just the wake-up call that traders needed and will spark a strong recovery.

Which of those is true will quickly become clear and will have implications way beyond the next couple of days. 



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of NASDAQ, Inc.