The latest jobs gains are a welcome sign. But jobs growth needs to be even stronger to kickstart the U.S. economy and make investors forget Europe's debt woes.
NEW YORK (CNNMoney) -- Unless you are one of those preternaturally glass is half-empty people who goes out on a nice, sunny day and complains about the light shining in your eyes, it is really difficult to find a lot of bad news in the December jobs report.
The number of jobs added was higher than expected. The unemployment rate was down. The so-called underemployment rate, which factors in discouraged job-seekers and people working part-time who can't find full-time work, was down. Wages were up, albeit modestly.
But don't tell that to mean old Mr. Market. Stocks were mixed Friday. And that follows a flat day for the market Thursday despite two other encouraging labor reports -- payroll processor ADP said 325,000 private sector jobs were added last month and weekly jobless claims fell again.
Even more telling is the fact that long-term bond yields slipped Friday morning. The 10-year Treasury dipped back below 2%.
Bond rates fall when investors buy bonds. It may seem counterintuitive, but lower yields tend to be more of a sign of a weak economy because it shows investors want something less risky than stocks.
Investors are still exceedingly nervous about Mother Europe. So signs of strength from the plucky colonies may not be enough to offset the debt fears swirling around Spain, Italy and France.
Italian 10-year bond yields are back above the psychologically important 7% level and Spanish yields are inching closer to 6% again.
"There continues to be more good economic news in the U.S. But Treasuries are rallying despite that because the market is far more focused on Europe," said Michael Materasso, senior vice president and co-chair of the fixed income policy committee at Franklin Templeton in New York.
And as long as Europe remains in trouble, investors will have legitimate reasons to worry about the health of the overall global economy as well. That's likely what is weighing on the minds of stock and bond investors.
"Europe is close to recession. Japan is in recession. Emerging markets are slowing down. Can the U.S. really decouple from the rest of the world?" asked Michael Mata, co-manager of the ING Global Bond Fund () in Atlanta.
Along those lines, there also seems to be a sense of disbelief about the nascent economic recovery in the United States. Can it really last? Investors are skeptical.
"The bond market seems to be saying, 'Don't tell me about today. Tell me what the economy will be like in the second half of the year.' There's a wait and see attitude," Materasso said.
There are also worries that Congress will screw things up by not taking any concrete steps this year to fix the debt problems here.
"Investors are having a tough time buying into the increasingly evident fact that the U.S. economy may be in a self-sustaining expansion," said Brad Sorensen, director of market and sector research with Charles Schwab in Denver.
"There are still a lot of concerns about the debt situation in the U.S. and the fact that Congress is not likely to do anything about it," he added.
In general, dissatisfaction with our nation's lawmakers could keep a lid on hiring.
"Businesses are still worried about taxes and regulation. It's an old story but it keeps companies concerned enough that they are not hiring and investing enough as they could be," said Bob Baur, chief global economist with Principal Global Investors in Des Moines.
When you think about it, the only entity in Washington that has really acted aggressively to ensure that the U.S. economy doesn't backslide is the Federal Reserve.
The Fed has done two rounds of quantitative easing, buying long-term bonds to keep rates low. And it has also supplemented that with Operation Twist, a program where the Fed sells short-term bonds to buy long-term debt.
Some experts think a third rendition of bond purchases, or QE3, could be coming later this year as well. But none of this is likely to actually stimulate growth.
"It's easy from a soapbox to call for this measure and that measure to inject liquidity into the bond markets," said Abdullah Karatash, head of U.S. fixed income credit trading with Natixis In New York. "The bond market feels that the reality is if we had a healthy underlying real economy, none of this would be a problem."
He hits the nail on the head there. The economy is still not healthy. It's recovering. All the latest job numbers, while undeniably good, are not good enough to make people forget how bad the economy was in 2008 and 2009.
"The labor markets have stabilized. Unemployment should continue to come down slowly," said Mata. But he added that if monthly job gains simply stay in a range of 150,000 to 200,000, that likely would translate into gross domestic product growth of only about 1.5% to 2% annually.
"That's not strong enough for the average consumer to feel really good about the economy There's still a lot of pain out there," Mata said.
Best of StockTwits and reader comment of the week:: As I wrote yesterday, it's almost time for the deluge of fourth-quarter earnings. And investors are not expecting much from the big, bad financials. Amusingly enough, neither are analysts at said big, bad financials.
Goldman (Fortune 500) is cheap. Just like the rest of the big banks. But I still think it's with good reason. This may be a value trap. So be careful Jeff. Don't want you getting stuck with some bad, rubbery calamari.,
Just to clarify for readers. Bespoke is referring to the fact that Wells (Fortune 500) ended 2011 with the highest market value of any of the big banks, surpassing JPMorgan Chase ( , Fortune 500). But it is interesting that Wall Street analysts are increasingly bearish about the business of Wall Street.,
Here's the funny thing though. These price targets don't reflect the negative outlook on profits. $24 is 50% higher than Morgan Stanley's (Fortune 500) current price, while $170 is more than 80% above where Goldman is trading! Talk about Orwellian doublespeak. The fundamentals are getting worse .... so there's a lot of upside!,
Finally, the reader comment of the week. There was a silly rumor going around Thursday suggesting that IBM (Fortune 500) would buy software firm Red Hat ( ). I found it odd since only a day earlier, IBM acquired a private company called Green Hat.,
"What's next, Big Blue to buy Man With the Yellow Hat from Curious George?" I tweeted.
That prompted the self-proclaimed "Mad Scientician, Quasi-Accountant" @techempage to respond thusly: "They are working on a children's book. "Red Hat, Green Hat, Nice Hat, Mean Hat." #suesswouldbeproud."
Indeed he would. Although I still think the rumor is nonsense. IBM will not buy Red Hat in the rain. It will not buy them on a train. Not in the dark! Not in a tree! Not in a car! You let IBM be!
The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, and Abbott Laboratories, La Monica does not own positions in any individual stocks.
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