Bad news for the economy is good news for the stock market… as long as it doesn't get too bad

Stocks surged after the Labor Department reported that nonfarm payrolls increased by 150,000, 20,000 less than expected.

In the current environment, the Fed and the markets are looking for a controlled, slow growth. Negative growth is not acceptable.

Friday's market response to the jobs report boils down to one simple principle: bad news is good, so long as it's not too bad.

Stocks

The rally was sharp

After the Labor Department said

Non-farm payrolls grew by 150,000 in October

The auto strikes are over, so the difference is 20,000 less than expected.

The Federal Reserve can ignore the situation because the wage increases are in line with expectations and the job creation is relatively low. It can continue to allow the data to flow in.

Without having to change interest rates

As it assesses the impact of previous hikes.

Mike Loewengart is the head of Morgan Stanley Global Investment Office's Model Portfolio Construction.

He added, "We have seen a few head-fakes in this direction. But the fact that it followed other economic data this week that were weaker than expected may encourage investors waiting for a Fed less hawkish."

The report triggered a variety of reactions from the markets. Traders of fed funds futures decreased the probability that

A December rate increase of less than 10%

CME Group tracking shows that the first cut could be made as early as May.

This cut, however, could be a bad sign, since it would likely signal that the Fed is concerned that the economy has slowed so much that monetary policy will need to boost it. In the current environment, the Fed and markets are looking for a controlled, slow growth. Negative growth is not what they want.

Michael Arone said, in an earlier interview, that investors who want the Fed to cut rates should be careful about what they wish for.

Recent statements by Fed officials indicate that despite market prices, cuts are not imminent. Fed Chairman

Jerome Powell

Tuesday, cuts

I have not taken part in the conversation

among policymakers.

Thomas Barkin, Richmond Fed president, said in an interview on CNBC’s "

Squawk in the Street

Imagine scenarios where the demand drops and you need to act. Imagine a scenario in which inflation has started to stabilize and you are looking to reduce real rates. "Both of those imaginary scenarios still seem pretty far away."