Stocks closed sharply lower on Friday, and for the week, after a hotter-than-expected jobs report.

Friday morning's Employment Situation Report showed nonfarm payrolls at 256,000 for December (223K for the private sector and 33K for the public) vs. the consensus for 157,000 (130K private and 27K public). The unemployment rate ticked down to 4.1% vs. last month's 4.2% and views for the same. Average hourly earnings were up 0.3% m/m, in line with expectations, while the y/y rate was up 3.9%, just under last month's 4.0% pace and estimates for 4.0% as well.

The biggest job gains came from the following sectors: Health Care added 46,000 new jobs; Retail Trade gained 43,000; Leisure and Hospitality increased by 43,000; Government employment rose 33,000; and Social Assistance jobs were up 23,000.

As for revisions to previous months, October was revised up by 7,000 to 43,000 (originally 36,000), and November was revised down by -15,000 to 212,000 (originally 227,000).

The much larger-than-expected jobs report weighed on stocks as it contributed to fears that the economy was heating up (not a bad thing), which in turn could cause inflation to go up, or at least continue to stall or not go down.

The market was already factoring in a 93.1% likelihood the Fed does NOT cut rates when they conclude their 2-day FOMC meeting on January 29. That increased to 97.3% after the report.

The big question is, what happens at the Fed's subsequent meeting on March 31? (The Fed does not meet in February.) At the moment, the odds are only at 24.4% that they cut in March.

But the overemphasis on rate cuts, I believe, is getting misplaced. The economy is clearly doing just fine with rates at the current levels. Let's also not forget that the Fed already cut rates by 100 basis points last year (all within 4 short months). And they fully anticipate to cut by another 50 basis points this year.

Additionally, inflation has fallen considerably over the last couple of years. True, progress has stalled recently. But it's clearly not hampering economic growth.

The S&P and Nasdaq are still up since the election on November 5^th. But the Dow, small-cap Russell 2000, and the mid-cap S&P 400 have erased their gains and more since then. And from their high close last year, the Dow is in pullback territory, having fallen by -6.83%. The S&P 500 is approaching pullback territory by being down -4.32%. The Nasdaq has pulled back -5.02%. The Russell has corrected by -10.4%, while the S&P 400 is approaching correction territory by falling -8.58%.

Pullbacks are defined as a decline between -5% and -9.99%, and they happen on average of 3-4 times and year. And corrections are defined as a decline between -10% and -19.99%, and they happen on average of about once a year. Pullbacks and corrections are very common. They happen in every bull market.

Could Friday's sell-off be the end of the pullback/correction? Quite possibly. It's also conceivable there could be more to come.

But given the routine occurrence of drawdowns like this, I'd be looking for places to buy rather than places to sell.

If the economy was teetering on the brink of recession, that'd be different. But it's quite the opposite – the 'worry' is that the economy is accelerating (and in the broader sense, that's good!). Bear markets typically coincide with recessions, not strong growth.

So keep the big picture in mind when watching the day-to-day action. Because the big picture looks bullish.

See you tomorrow,