Stocks rally at the end despite weak jobs report

U.S. economy gains 142,000 jobs in September
U.S. economy gains 142,000 jobs in September

There's no sugarcoating it. The September jobs report was not good. And it's adding to the considerable amount of confusion that investors have about the global economy and financial markets.

The Dow Jones Industrial Average, S&P 500 and Nasdaq all fell sharply in early morning trading Friday..

But stocks recovered from the worst of their losses and finished the day up about 1%. The Dow was down nearly 260 points at one point Friday morning but wound up closing with a 200-point gain.

Still, the weak jobs report has some experts wondering if the Federal Reserve will now hold off on an interest rate hike until next year.

Along those lines, bank stocks were among the biggest losers Friday. The SPDR S&P Regional Banking (KRE) exchange-traded fund plunged 2%.

Related: CNNMoney's Fear & Greed Index shows Extreme Fear

Low rates have hurt profit margins at many banks since it's tougher to make money on loans when short-term rates are near zero.

And government bond yields fell as well. That's another sign that investors are more nervous about the health of the economy and feel that the Fed may keep rates near zero for even longer.

The rate on the benchmark 10-year U.S. Treasury note dipped below 2% for the first time since the market panic of August 24.

Related: Big setback: U.S. adds only 142,000 jobs

Bond yields fall as prices rise. Traders tend to buy more bonds when they are worried about the economy. Bonds are viewed as a safer alternative to much riskier stocks.

Gold (GLD), which often does well when investors are nervous, shot up more than 2% Friday.

CNNMoney's Fear & Greed Index, which measures seven gauges of investor sentiment, continued to show signs of Extreme Fear. And the VIX (VIX), a market volatility gauge that is one of the components of the Fear & Greed Index, was up as much as 8.5% Friday morning. It closed the day down 6.4%.

It's understandable why investors are on edge.

Stocks just suffered their worst quarter in four years, largely due to worries about market turmoil in China and concerns that the Chinese economy was slowing at a much more dramatic pace than thought.

Related: Ugly jobs report casts doubt over 2015 Fed rate hike

In fact, the Fed cited global volatility as a main reason why it did not raise interest rates last month.

But many market bulls had maintained that China's woes would not hurt the U.S. and jobs growth remained strong, was the argument of the optimists.

The disappointing jobs report now calls into question the strength of the U.S. economy.

The Fed may now need to push off plans for a rate hike until early 2016 unless the jobs numbers for October and November show healthier job gains and a stronger pickup in wage growth.

Even though the market usually cheers news that suggests the Fed will keep rates low, there is now a sense that rates have been near zero for too long.

"It's Fed fatigue. Everyone wants to know when the rate hike will happen so we can just get it done with already," said Ludovic Subran, group chief economist for Euler Hermes.

Related: The third quarter was brutal. But these stocks were winners

The Fed slashed rates to zero in December 2008 -- the height of the credit crisis and Great Recession.

This would be the first rate hike in nine years, and an important symbolic sign. It could show the Fed's confidence in the U.S. economy.

But all of a sudden, investors have to wonder if there are more reasons to be pessimistic than optimistic about the economy and job market.

Paul Nolte, a portfolio manager with Kingsview Asset Management, said the U.S. is starting to look a lot more like Japan, which had a "lost decade" of economic growth despite a long period of low interest rates.

Nolte thinks that economic data will probably continue to be uneven for the foreseeable future. As a result, he fears that there will be more market volatility.

"That's a wonderful environment for traders. But it's not a good one for long-term investors."

It's not particularly good for the Fed either.

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