A good payrolls number was bad news for stocks this past week, though the market finished the week right back where it started. Investors had better hope that truly bad news doesn't arrive in the form of a hotter inflation report.

First, the good news. Friday's jobs report showed that 162,000 jobs were created in August-about three times what economists had expected-while the unemployment rate remained tame at 4.1%. It was a huge change from the bracing loss of 23,000 jobs in July, though that number was revised up to a far more benign 21,000 new jobs.

The revision alone explains why it's never a good idea to focus on any individual jobs report. Survey response rates have been declining around the world, and U.S. businesses have gotten much slower at responding to the Bureau of Labor Statistics, which threatens to make the initial nonfarm payrolls number noisier and less valuable.

Taken at face value, however, these reports suggest that the job market is really quite strong. In addition to the boldface numbers cited above, the number of people working or looking for work rose slightly to 61.6%, for the first boost in the participation rate in 11 months. And the underemployment rate fell to 7.7%, the lowest since June 2025.

"This is a very strong report, and it proves out that the little blip that we had in payrolls last month was in fact a little blip," says Mike Dickson, head of research at Horizon.

It's always dispiriting to see stocks react to good news with a Bronx cheer, but that seemed to be the case on Friday, when the S&P 500 index dipped 0.5%. It ended the week flat, while the Nasdaq Composite was slightly higher and the Dow Jones Industrial Average was 0.7% lower.

The Friday dip angered at least one market watcher.

"How crazy is this?" President Donald Trump wrote on Truth Social. "We just got GREAT Numbers on Jobs, the Market should go UP, because our Credit and Economy are better but, as always, for the past 25 years, the Stock Market goes DOWN, because we're living under False Reality that if things are good, you've got to 'KILL IT' because of a 'fear' of Inflation."

Indeed, the odds of an interest-rate hike at the end of the Federal Open Market Committee meeting on Sept. 16 rose from 50% to 60%, per the CME FedWatch tool, after the payrolls report, and now the focus is turning to Wednesday's consumer price index release. If inflation comes in hotter than the 3.4% annual rate expected by economists, a rate hike could become a sure thing. "We need inflation to cooperate-even more so after this report than we did before," Dickson says.

And that could be a problem for an economy that might not be as strong as the jobs data suggest. Economic consultant A. Gary Shilling points out that rising grocery prices seem to be cutting into consumer sentiment and retail sales, and higher prices even seem to be leading to more consumer debt and more bankruptcies. "Consumers are signaling that all is not great with the economy," he concludes.

The issues seem to be showing up in earnings. Lululemon Athletica investors were shocked by a 9% decline in same-store sales for the second quarter, which caused the stock to plunge 18% on Friday. It also led to a good old-fashioned analyst pun-off, with BNP Paribas opting for the simple "Another Legging Down," leaving in the dust Jefferies' incomprehensible "Time To Open A Lemonade Stand...Got Excess Lemons Ahead." That said, the athletic-apparel company's struggles may also be the consequence of an oddly delayed start for the incoming CEO-which, per an Oppenheimer report, "renders LULU a 'rudderless ship.' "

The market might have a rudder, but it's hard to tell who-or what-is in control. On one side, there's the Federal Reserve trying to control inflation, and on the other, American corporations riding a massive earnings wave to new heights. The trouble is that earnings season has come to an end, and this quarter's results won't trickle in until mid-October, leaving the market at the mercy of the Fed.

And that could be bad news indeed.