The Bureau of Labor Statistics reported that the U.S. economy added 261,000 jobs in October which was better than consensus expectations of 205,000 jobs added. On Wall Street, the immediate reaction was for yields to spike higher and stocks to drop. Later in the session, stocks rallied on rumors of China reopening, while bonds also finished off their lows.

Weakness in the employment report is certainly a negative for the economy but would be a positive catalyst for equities as it would signify that the Fed's hiking cycle is close to an end. Wages are an important component of recent inflationary pressures, and the Fed is looking to tamp down on inflation without causing too deep of a recession.

However, the jobs report indicates that the economy has been able to handle higher rates and continues to expand at an aggregate level. The report did mark the slowest pace of job gains since December 2020. We also saw the unemployment rate move higher to 3.7% while analysts were looking for 3.5% as the labor force unexpectedly grew.

Average hourly earnings increased by 4.7% annually and by 0.4% for the month. Wages are likely to continue to have more upwards pressure as workers are losing money on a real basis. And, this has been one of the key drivers of inflation's durability.

Following the report, odds increased for a 50 basis point hike at the upcoming December and February meetings. And, odds declined for a 75 basis point hike at these meetings. The next major variable impacting these odds will be the CPI report next week.

Healthcare was the biggest contributor to job growth with 53,000. Professional and technical services added 43,000, while manufacturing grew by 32,000. Leisure and hospitality gained 35,000 jobs although this is a sharp deceleration from its pace in the last 18 months. In terms of revisions to previous months, September was adjusted higher by 52,000, while August was reduced by 23,000.

September's jobs number was revised higher, to 315,000, an increase of 52,000 from the original estimate. August's number moved lower by 23,000 to 292,000.