Goldilocks Eats Bears' Porridge

Goldilocks is back.

Friday's report that the U.S. added 110,000 jobs last month emboldened bulls. Stocks rallied, reflecting investors' belief that the Federal Reserve's interest rate policy "threaded the needle" and kept the economy growing without spurring inflation.

"The Fed tightened just enough through June of last year to pop a couple of bubbles and un-tighten the labor market," says T.J. Marta, fixed income strategist at RBC Capital Markets.

"We've had the evolution of the housing problems from builders to lenders to hedge funds to banks to consumers, and we're back to the original question of, 'Can the housing market take down the U.S. economy?'" adds Marta. "We're highly skeptical that it can."

Adding to the optimism was a positive revision to August's report. The initial report of a loss of 4,000 jobs spurred fears that the economy was stumbling into a recession and gave the Fed room to cut rates at its Sept. 18 meeting.

But the government said Friday that a revised look at earlier data shows the economy added 89,000 jobs in August and 93,000 in July, a gain of 25,000 from the initial July reading.

For now, the markets appear unperturbed that the good news on jobs may mean no further rate cuts. Federal Reserve Vice Chairman Donald Kohn made remarks in a speech Friday morning that were taken to mean that the 50-basis-point cut in August would be enough for now.