Nonfarm payroll employment rose by 348,000. This was nearly 200,000 higher than the pre-report consensus estimate. There were increases across the entire spectrum of industries. Even the beleaguered manufacturing sector managed to eke out a gain of 6,000.

The bond market swooned at the idea that economic activity was picking up, rationalizing that this would lead to labor shortages, and upward pressure on wages, prices, and short-term interest rates. Accelerating prices are the bugaboo of the bond market because they lead to Federal Reserve tightening of interest rates, and increasing interest rates cause bond prices to decrease.

In the absence of increasing inflation, a pickup in economic activity would be positive for stocks. If companies are experiencing increased sales and profits, then their share prices should rise. But, this morning, stock market participants took their cue from their bond market brethren and stampeded for the nearest exit.

Is there any basis for these inflationary fears? Not so far. If you're a regular reader of these articles, you know that the Producer Price Index, the Consumer Price Index, and the GDP price index for gross domestic purchases have all been hanging in there at modest levels. In an interview today, Federal Reserve Board Governor Janet Yellen, speaking about the possibility of accelerating inflation said, "I won't rule that out as a possibility. But I'm not losing too much sleep worrying about that scenario."

At the end of the day, when the dust had settled, the bond market seemed to still be worried. The price of the 30-year T-bond had dropped by 1 17/32 and the yield had risen from 6.90 percent to 7.04 percent. But, cooler heads eventually prevailed among stock market participants. The Dow Jones Industrial Average, after dropping by some 85 points this morning, rallied back for a gain of almost 30.

Byline: Lafferty (MF Merlin)