Stocks fall after good economic news. Let's explain.

Stocks fluctuated Friday in response to good economic news, a development that requires some explanation.

A government report Friday morning showed that U.S. employers added a whopping 256,000 jobs in December. The unemployment rate fell to 4.1%.

But when the opening bell rang, the stock market reacted with concern. Shortly after trading began, the Dow Jones Industrial Average fell 0.6%. The S&P 500 lost 0.8%. The Nasdaq lost 1.5%.

The reason: A booming economy is fueling fears that the Federal Reserve could change course by cutting interest rates. A popular FedWatch forecast shows that it is almost certain that the Fed will leave interest rates unchanged at its January meeting. Many traders don’t believe regulators will order another rate cut before summer. Typically, the Fed lowers interest rates to stimulate the economy and raises them to slow it down.

A strong jobs report is bad news for stocks

The strong jobs report “will be good news for the U.S. economy and the U.S. dollar, unwelcome news for stocks,” said Seema Shah, chief global strategist at Principal Asset Management.

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Other observers agreed.

“We expect the S&P 500 to decline in the 0.5% to 1.25% range today,” Larry Tentarelli, chief technical strategist at Blue Chip Daily Trend Report, said in response to the jobs report.

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Stocks fall after good economic news. Let’s explain.

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