Jobs Report Pummels Stocks

"There is a huge sense of disappointment with this jobs number," said Kenny Landgraf, president of Kenjol Capital Management. "The jump in the unemployment rate combined with higher wages gives us a sense that the economy is indeed slowing down. The market believes the [Federal Reserve] is behind the curve, and now it remains to be seen if the Fed will step in front of this and cut between meetings."

Jason Pride, director of research with Haverford Investments, said the data fall in line with a midcycle slowdown, something the U.S. central bank may be comfortable with as long as inflation doesn't rise too rapidly.

"Because of where inflation is sitting, the Fed will be hesitant to react dramatically," he said. "This isn't necessarily a sign of recession, but the economy is running at a very slow pace. It's not the end of the world, but it's not favorable in the context of everything else going on."

The Fed will discuss interest rate policy at a two-day meeting at the end of the month. Earlier this week, minutes from the Federal Open Market Committee's Dec. 11 meeting showed that members were concerned about rising inflation as well as an "unfavorable feedback loop in which credit market conditions restrained economic growth further."

U.S. Treasury prices traded higher in the wake of the jobs data. The 10-year note climbed 8/32 in price, dropping the yield to 3.86%. The 30-year bond rose 1/32, yielding 4.36%.