Before you get too excited by Friday's rally. . .
U.S. equities posted their best one-day gain since October on Friday after the November nonfarm payroll report came in slightly better than expected. All three major indexes jumped by more than 2 percent, with the Dow Jones industrials adding 370 points to close at 17,848, the S&P 500 adding 42 points to end at 2,092 and the Nasdaq adding 105 points to finish at 5,142.
However, it's worth noting that stocks tend to rise on the Fridays when the monthly jobs numbers are reported, regardless of whether they're weak, strong or middling. That's what they did back in September (big miss) and October (huge beat). Friday's gains stood in stark contrast to the deep weakness seen on Thursday. But that, too, followed the pattern of pre-payroll report drops seen in September and October.
So, chalk this one up to computer trading algorithms.
Because stepping back, the factor that has kept the blue-chip Dow index below the psychologically important 18,000 level remains in play: Worries over the consequences of a likely Federal Reserve interest rate hike at its Dec. 16 policy meeting, made all the more probable by November's solid employment report.
Remember, falling stock prices on Wednesday and Thursday were largely fueled by comments from Fed Chair Janet Yellen that consistent job market gains were increasing her confidence that the annual inflation rate would soon return to the Fed's 2 percent target.
She added that even tepid monthly payroll gains of less than 100,000 would be enough to keep the recovery on track.
We got much more than that last month: November nonfarm payrolls grew by 211,000 positions, slightly ahead of the 190,000 Wall Street was looking for. And the unemployment rate held steady at 5 percent. October's result was revised higher to an impressive 298,000 gain. Wage growth remains tepid, however, with average hourly earnings up just 0.2 percent in November vs. 0.4 percent in October.
On a long-term term note, Philippa Dunne from the Liscio Report pointed out that total employment is now 5.9 percent above where it was 10 years ago, a big reversal from the 10-year decline of 1.4 percent seen in the depths of 2010's labor market.
Some early indications also show that consistent job gains are leading to labor market tightness and hints of wage pressure. The annual gain in hourly earnings is running at a 2.3 percent rate, 0.2 percentage points above its 2014-2015 average.
But maybe we should simply take today's job gains and stock market rally at face value: Investors are happy to see the economy shrugging off a myriad of headwinds (factory slowdown, terrorists attacks, slumping crude and weakness in high-yield bonds) and putting more and more people to work.
Another factor that could be boosting equities on Friday were comments from European Central Bank chief Mario Draghi reinforcing his commitment to hit the ECB's inflation target and to bolster economic growth by unleashing additional stimulus measures, if necessary.
This eased some of investors' disappointment on Thursday when they perceived only an incremental expansion of existing stimulus measures (six-month bond buying extension, minimal interest rate cut) by the ECB, when they expected more.
So, to make this rally real, the bulls will need to maintain the upward momentum heading into the Fed's actual rate hike announcement, which economists at BNP Paribas said was now "all systems go." And that means finally pushing the Dow industrials back over the 18,000 level that it hasn't crossed since July.
Because otherwise, this will look like more Wall Street shenanigans ahead of coming post-rate hike weakness. That's what junk bonds and commodities -- as well as transportation, utility and small-cap stocks -- seem to be warning of by continuing to trade near their September-October lows.