What a Week: Three-Act Drama

Instead, the unemployment rate remained steady at 4.5%, while average hourly earnings, rose 0.5%, putting wage growth at 4.2% year over year -- well above the two-decade average of 3.2%, writes Michael Darda, chief economist at MKM Partners. A tight labor market, evidence of excess liquidity in narrow credit spreads and signals that the housing market has seen its worst day mean expectations for Fed rate cuts are "hideously off base," according to Darda.

The fed funds futures market shows investors are at least extending expectations for rate cuts -- again. The pushing back of these rate-cut bets is reminiscent of the constant "one and done" battle that went on for a year before the Fed paused its tightening campaign in August.

As of Friday afternoon, better than 50% odds of a cut don't come into play until June -- at 58%, down from 86% on Thursday, according to Miller Tabak. A cut in January is almost out of the picture, at 2% odds. At the start of December, the market was pricing in 30% odds of a cut in January, 70% odds in March and a second rate cut by the May meeting. Odds of a second rate cut at some point next year have slipped to 80% from 100% Thursday.

The Treasury bond market reacted to the payrolls report by pushing rates higher Friday, though the yield on the 10-year benchmark note is lower on the week. The 10-year finished the day yielding 4.65%, down from 4.71% as of last Friday.