Friday's payroll report changed the equation.
For a long time, it looked unlikely that the Federal Reserve would raise interest rates in December. Despite comments from Fed Chair Janet Yellen implying that a hike was likely in 2015, there are too many question marks to make such a move likely or wise.
With a staggering 271,000 jobs added in October -- nearly 100,000 above expectations -- the Fed's data-dependent stance just got a big mark in its favor. The central bank has been waiting for a sign that the U.S. economy is strong enough to withstand higher rates -- of course, we're looking at a nominal rate increase, with subsequent ones small and sporadic thereafter -- and if the jobs report isn't that sign, it's hard to think of what could be.
Of course, the standard caveats apply. A number this strong could easily be an outlier or revised downward next month, one month does not make a trend, etc. When it comes to the Fed, nothing is official until it is, but the report has caused us to adjust our timeline.
No doubt a lot of investors are doing something similar today, and will continue to over the coming week. While the jobs report seems to answer the rate question, it raises new ones at the same time. While strong jobs growth is an undeniable positive for the economy, expect trading to be volatile in coming sessions as investors grapple with the fallout to the report.
A major theme on Wall Street in recent years has been that "good news is bad news" -- in other words, that strong economic data would prove a negative for markets as it signaled that the Federal Reserve would make its policies less accommodating (by slowing or ending quantitative easing or raising rates). That hasn't ended. The prospect of higher rates -- especially on multinationals, which stand to be hit by a stronger dollar, and on the utility sector -- could spook investors enough to overshadow the benefit of stronger growth.
Hopefully the October report signals the start of an era with a far more robust labor market, with ascendant wage growth, but until the Fed's rate policy is no longer a question mark, expect the market to continue reflecting the uncertainty.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.