A funny thing happened after the February unemployment situation report was released. Equities sold off. The number was a strong one. Non-farm payrolls grew by 295,000, more than 50,000 above expectations; the headline unemployment rate dropped to 5.5%, more than the 0.1% drop expected and the all-important hourly earnings numbers came out up 3¢, not a huge increase but enough to allay the fears of deflation.

Perhaps this isn’t that odd as momentum was building up in the financial media of the potential for a June tightening by the Federal Reserve. While we have noted that a June tightening would not be out of line or in conflict with long-term Fed guidance the financial media tends to get excited about these things.

What is a little disquieting about this is that many of us have thought the market had gotten beyond the hysteria over what a data point might do to the Fed timetable. We though the market had begun to follow real fundamentals rather than how the Fed would react to certain news. 

Take a look at the following Treasury bond  chart.

It is a typical reaction for long-term Treasury bonds to a stronger than expected  unemployment report.

Now take a look at this E-mini S&P chart.

This is not so typical. At least not if you assumed we moved beyond the good news is bad and bad news is good post credit crisis world.

Just as tapering was not tightening and a recognition that the Fed cannot buy $85 billion worth of bonds every month to infinity, acknowledging that interest rates will at some point have to move beyond zero, is no cause for panic, a good number should not scare traders. It should, in fact, be a cause for celebration.

Equity traders need to face the fact that at some point interest rates will need to rise. It has been more than six years of a zero interest rate environment. That the Fed is expected to raise rate no more than 25 basis points starting at some time in mid-2015 and aren’t even expected to raise rates at every meeting, as it did in the last tightening cycle, should calm people’s fears. Based on the current expected timetable and recent economic news, people should be afraid the Fed is being too cautious, not too rash. Even if they do choose to rasire the Fed Funds rate 25 basis points in June.