Market Roundup
17,910.13 (+46.70)
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5,147.12 (+19.38)
10-YR Yield
2.33% (+0.09)
$1,087.60 (-$16.60)
$45.60 (-$0.64)
Color me surprised.

After several weeks of deteriorating or weakening data, and a relatively tepid ADP employment report, the Labor Department weighed in with a true jobs surprise this morning. It showed …

ArrowThe U.S. economy created 271,000 jobs in October, far greater than the 185,000 average gain expected by economists. That was also up from a downwardly revised reading of 137,000 in September.

ArrowBy industry, professional and business services added 78,000 jobs, health care added 45,000, and retail added 44,000. Government employment rose an anemic 3,000, manufacturing and trade showed little change, and mining lost another 5,000 jobs.

ArrowThe unemployment rate slipped to 5% from 5.1%, leaving it at its lowest since April 2008. The average workweek held at 34.5 hours. But average hourly earnings rose 0.4%, up from no change a month earlier and double the gains expected.

Back at work: The U.S. jobless rate fell to 5% in October, showing surprising strength.

It isn’t a Wednesday, but the “Bloody Wednesday” response in several asset classes was swift and severe. Short-term rates surged, while bond yields rose several basis points. Gold plunged by as much as $20 an ounce. The euro immediately lost more than a cent and a half against the dollar, and volatility spiked.

So what happens next? Well, this news puts a Federal Reserve rate hike firmly in play at the December meeting. That means we could be in store for one (and potentially several more) tumultuous trading days as investors come to grips with the fact the Fed is no longer in their back pocket.

Next, this news could put even more upward pressure on the dollar. That, in turn, could exacerbate the turmoil we’ve seen in energy, commodity and emerging market investments.

“A stronger dollar and/or the start of a Fed tightening cycle won’t do them any favors.”

As I mentioned above, the jobs report showed that those industries are the ones that are already lagging badly in terms of job gains (and losses). A stronger dollar and/or the start of a Fed tightening cycle won’t do them any favors.

Lastly, my investing strategy overall remains the same, regardless of today’s numbers: Invest prudently in select, highly rated stocks in strong sectors … balance that out with higher-than-normal cash levels … and be prepared to deal with more market turmoil down the road.

Now it’s your turn. Does a strong jobs reading “fit” with what else we’ve been hearing? Does it change your view on the economy, or does it seem to be coming out of left field? What do you think this reading means for stocks, bonds, commodities, and currencies going forward? Weigh in at the Money and Markets website when you get a chance.

Our Readers Speak

Should investors sink their teeth into the FANG stocks … or stay away so they don’t get bitten? That was a major issue being debated online.

Reader Craig B. said: “Americans love winners, so owning one of these Internet stocks is seen as smart investing and not buying in as either dumb money or losing out. Nobody seems to talk about the potential downside risk, nosebleed valuations, or the fact any one of them could suddenly correct sharply when earnings disappoint or sentiment turns negative. Paper profits are held hostage to the crowd.”

Reader Richard also took a skeptical view, saying: “ at 929 times earnings is a share price that gives us all a stark reminder of the dot com bubble. At these levels there is only one way for this overpriced warehouse trader to go.

“All it will take is the next correction and this will be a better short than all the banks and indices put together. A 50% correction of this stock would still be overpriced.”

Reader GKA joined in with the following post: “Excellent encapsulation of what really, really, REALLY is beginning to smell like ‘pre-dot-com bust fever’ affecting these names and some others as well.

“Yes, true, good ol’ irrational exuberance can propel a darling stock far beyond the parameters of reality. But any kind of real change in interest rate direction or other unforeseen exogenous event can derail it just as surely as history has already shown. You wanna step in at these levels? Be my guest.”

But at least one commentator said he smells opportunity. Reader Tom wrote: “Funny thing, Mike. Jim Cramer (Mad Money) coined the acronym FANG a few months ago. Interesting that you’re picking up on it now. Anyway, I’m glad that you’re finally opening your eyes to the rich opportunities that exist in the market for growth and profits. Welcome!”

Thanks for weighing in. Chasing stocks that trade for more than 900 times earnings isn’t really up my alley. I’ll leave that to others who prefer that kind of trading.

Me, I like safer, more stable stocks that deliver steady gains over time. And a few of my current Safe Money Report picks have actually hit all-time or multi-month highs in recent days … with a lot less volatility than we’ve seen in FANG names.

Anything else you want to add to this discussion? Then don’t hesitate. Use this link to get your comments out there for everyone to see.

Other Developments of the Day

● The New York Attorney General launched an investigation of Exxon Mobil (XOM), one focused on whether the oil giant misled investors and the public about its contributions to climate change. Other domestic and foreign oil companies could get dragged into the environmental and legal battle, though it’s far from a given that any lawsuit would be successful.

● It’s been one heck of a year for tropical cyclones, according to meteorological officials. A measure of worldwide cyclone, typhoon, and hurricane activity used by weather aficionados shows this to be the second-most active year in history behind 1992. Most of the intense storms and overall activity has been in the Pacific Ocean, however.

* Mergers continue to grab headlines in the biotechnology industry, despite recent struggles tied to drug pricing. AstraZeneca (AZN) announced it would buy ZS Pharma (ZSPH) for $2.7 billion, adding the California-based company’s ZS-9 medicine to treat a condition that can cause kidney disease and heart failure. The compound is undergoing FDA review right now.

● Officials in the U.K., U.S., Egypt, and Russia haven’t reached agreement yet on what downed the flight that claimed 224 lives several days ago. Another concern is security, and how to get thousands of tourists out of the Sharm El Sheikh resort area. U.K. and Egyptian officials are trying to coordinate flights to and from the region to allow British visitors to get home.

What do you think of the upturn in tropical storms? The ongoing fighting over what downed the Russian flight? Or the environmental movement targeting Big Oil in New York? Let me know over at the website. Also feel free to also comment on other stories I may have missed.

Until next time,

Mike Larson