Stocks closed mixed on Friday, but all of the indexes closed higher for the week for the second week in a row.

Friday's Employment Situation Report came in better than expected with 263,000 new jobs created last month (221,000 in the private sector and 42,000 in the public), vs. the consensus for 220,000 (200K in the private sector and 0 (zero) in the public). The unemployment rate was unchanged at 3.7%, as expected. The participation rate, however, dipped to 62.1% vs. last month's 62.2% and views for 62.3%. And average hourly earnings rose 0.6% m/m vs. expectations for 0.3%, while hourly earnings were up 5.1% y/y vs. last month's pace of 4.7% and views for 4.6%.

The biggest job gains came from the following industries: Leisure & Hospitality added 88,000 new jobs (with Food Services & Drinking Places leading the way with 62,000); Health Care rose by 45,000; Government jobs were up by 42,000 (local government accounted for most with 32,000); Other Services rose by 24,000; Social Assistance employment increased by 23,000; Construction was up by 20,000; Information jobs were up by 19,000; Manufacturing was up by 14,000; and Financial Activities also picked up 14,000.

Interestingly, Retail Trade decreased by -30,000 jobs, and Transportation and Warehousing declined by -15,000.

All in all, the larger than expected job gains underscored the resiliency of the economy.

But when the report first came out before the open, the futures market immediately dropped on the news, as it also suggested the inflation fight by the Fed will be harder. The labor market is a barometer for the economy, and after significant rate hikes, the economy is still going strong, while inflation has only moderated by a bit. And wage growth is also up more than expected, another inflation indicator that some worry is ever tougher to bring down.

However, many also recognize that monetary policy has a lagging effect, and that the unprecedented four, 75 basis point rate hikes, plus the first 25 and 50 basis point hikes that started it all, will begin to slow down the economy enough to bring down inflation (it has already started), and wage growth.

And the consensus is still for the Fed to slow their pace of rate hikes at their next FOMC meeting on December 13-14 to 50 basis points.

How high they go in 2023 is still unknown, but it's now widely believed it will be in the vicinity of 5% (after December's expected 50 bps hike, the midpoint for the Fed Funds rate will be at 4.38%), which means we are getting closer to the end of the rate hike cycle.

Fed Chair, Jerome Powell, reiterated their moderation plans last Wednesday by saying the Fed "doesn't want to overtighten monetary policy. That's why we are slowing down." And that he believes the prospect of a soft landing is still "very plausible" and "still achievable."

In the meantime, traders will be seeing if they can build on gains over the last 2 weeks (and really, build on the gains ever since the market put in its key upside reversal on October 13).

The fundamentals are there, and so are the seasonal tendencies to do just that.

See you tomorrow,