This was the week on Wall Street that good news was seen by many traders as simply good news.

The deluge of economic data left traders and investors ever more confident that the

Federal Reserve

is on hold for the rest of the year when it comes to raising interest rates. So on Friday -- amid weak preholiday volume -- traders rejoiced by sending the major market averages well into the green.

Friday's market-friendly economic data came from the Labor Department, which reported that 128,000 jobs were added in August, more than the consensus forecast of 125,000. The August number came in even higher than the upwardly revised 121,000 that the government says were created in July.

Unemployment fell to 4.7% from 4.8% last month, and average hourly earnings rose by 0.1%, lower than the 0.2% rise economists had expected.

The better-than-expected news on the jobs front led to an early stock market rally, which drove all three major averages to three-month highs. The

Dow Jones Industrial Average

gained 0.74% Friday and 1.6% on the week, to close at 11465.27. The

S&P 500

added 0.55% Friday and 1.2% on the week to finish at 1311.04. The

Nasdaq

Composite continues to creep toward positive territory for the year -- gaining 0.43% Friday and 2.5% on the week, to close at 2193.15. The Nasdaq is only 12.17 points away from breaking even for the year.

It seems the more the market believes the Fed is on hold, the more "good means good" when it comes to economic data. Earlier in the year, when the market feared rate increases, good data were often viewed as something bad because they gave the Fed the leeway to keep hiking. But now good news about the economy is being seen by investors as proof that a so-called soft landing is really possible. Better yet, investors are becoming less worried about corporate profits taking a hit.

The optimism that the Fed is done can be seen in the fed funds futures market, which is now pricing in only an 8% chance of another rate hike this year. That's down from 32% just a couple of weeks ago.

Yet there are still plenty of investors out there betting that the Fed's next move will be to cut rates. The odds of a rate cut at the Fed's January meeting jumped to 24% by the end of the week, up from 8% just a few days ago.

The Treasury bond market continued its strong rally this week, pushing yields well below the 5.25% fed funds rate. The 10-year note ended Friday below the 4.75% threshold.

While the bond market may be painting a relatively bleak picture of the economy, the updraft in cyclical stocks this week reflects the stock market's higher level of optimism for the economy's soft landing.

The Morgan Stanley Cyclical Index

I:CYC

ended the day up 0.92% and 2.8% on the week.

Caterpillar

(CAT) - Get Report

gained 1.43% Friday and 2% on the week, and

DuPont

(DD) - Get Report

gained 1.4% Friday and 3.3% on the week.

Alcoa

(AA) - Get Report

gained 1.47% on the day and 0.3% on the week, while

U.S. Steel

(X) - Get Report

gained 1.94% Friday and 0.6% this week.

United Technologies

also gained 0.65% Friday and 4% on the week.

The market took this week's mixed retail sales figures in stride, as the first look at back-to-school spending was relatively positive. In addition, the Commerce Department reported that consumption and wages are on the rise. Companies like

Wal-Mart

(WMT) - Get Report

,

Nordstrom

(JWN) - Get Report

, and

Abercrombie & Fitch

(ANF) - Get Report

reported strong same-store sales in August, and their shares gained 3.4%, 11.5% and 5.8% on the week, respectively.

The strong sales from those retailers offset poor showings at

J.C. Penney

(JCP) - Get Report

and

Gap

(GPS) - Get Report

.

The ever-newsworthy automakers

General Motors

(GM) - Get Report

and

Ford

(F) - Get Report

reported vastly differing U.S. sales numbers for August. GM's August sales increased 8%, while Ford's plunged 14.8%. The carmakers' shares reversed recent patterns, with GM's stock jumping 3.91% Friday and Ford's falling 0.96%.

Overall, investors are still anxious about the consumer, given the weakness in housing and possible inflationary pressures. But the market is sniffing out a bottom in the housing sector, suggesting again that traders are betting on a soft landing. The Philadelphia Housing Sector Index gained 2.7% on the week.

Falling oil and gasoline prices also buoyed investors' moods about the consumer. Oil battled with the $70 per barrel price, and ended the week lower by 4.4% at $69.19. The price of gasoline fell 15 cents this week, or 7.9%, to $1.73 per gallon, and other commodities dropped this week as well.

The week's data even encouraged some of Wall Street's more hawkish economists to rethink their call for another rate hike come Sept. 20. Ethan Harris, chief economist at Lehman Brothers, altered his position, predicting the Fed will remain on hold in September. He still forecasts another two rate hikes, at the October and January FOMC meetings, however.

"Both key measures of core inflation are growing above the Fed's comfort zone," writes Harris. "Inflation pressures from the labor market require more Fed action," he adds, noting that Friday's print aside, average hourly earnings are growing at a 3.9% year-over-year clip -- the highest level in five years.

All that said, it is hard to argue with the market's conviction about the interest rate picture.

In keeping with TSC's editorial policy, Rappaport doesn't own or short individual stocks. She also doesn't invest in hedge funds or other private investment partnerships. She appreciates your feedback. Click

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