Sometimes, good economic news is bad. Robust jobs data today triggered fears about inflation and interest rates. Stocks tanked.

The Labor Department reported Friday that U.S. job growth and wages jumped in January. Nonfarm payrolls increased by 200,000 jobs last month. They rose 160,000 in December. The unemployment rate stayed at 4.1%.

Average hourly earnings rose 0.3% in January to $26.74, after a 0.4% gain in December. Those two increases lifted the year-over-year growth in hourly earnings to 2.9%, the biggest rise since June 2009. After Friday’s data, benchmark 10-year Treasury yields extended their rise and breached 2.83%, a four-year high.

The main stock indices fell off a cliff today. Investors worry that economic growth will overheat. The job market is tight. Unemployment is at a 17-year low. The $1.5 trillion tax cut kicks in during an expansion. It’s a recipe for inflation. The Federal Reserve might raise rates more often than planned.

The Dow Jones Industrial Average, S&P 500, and Nasdaq ended Friday’s session deeply in the red. Monday and Tuesday witnessed sharp losses as well. It was the worst week for the Dow and S&P 500 in two years. Today’s plunge put the Dow back below 26,000.

Large-cap stocks reported solid earnings this week. It didn’t save them from the carnage.

The fear of fear itself…

The CBOE Volatility Index (VIX) and related funds today soared.

The iPath S&P 500 VIX Short Term Futures ETN (VXX) rose 13.48%; ProShares VIX Short-Term Futures ETF (VIXY) rose 13.56%; VelocityShares Daily Long VIX Short-Term ETN (VIIX) gained 13.30%; and REX VolMAXX Long VIX Weekly Futures Strategy ETF (VMAX) increased 16.65%.

The VIX jumped 28.95%, its highest level in more than a year.

Keep this in mind: The VIX is a measure of fear in the stock market, but it’s a poor predictor of the market’s future direction.

The Chicago Board Options Exchange created the VIX as a gauge of “implied volatility” in the market. It’s based on the amount of trading in near-term put and call options on the S&P 500 index.

The VIX rises when demand for put options outweighs demand for calls. (That’s because put options increase in value when the index declines in value.) The VIX falls when demand for call options outstrips demand for puts. (Call options increase in value when the index goes higher.)

The VIX is not a leading indicator, as many investors mistakenly believe. The VIX measures current fear. And as the VIX is telling us, that fear is spreading.

Hit the mute button…

Whatever the trigger, a correction is coming. It may have just started.

But let’s be clear: I disdain the Chicken Littles. Sure, the markets had a terrible day. That said, you should tune out the perpetual prophets of doom.

Hit “mute” when the bears start bloviating on cable news. Some of these clowns have been predicting the collapse of capitalism ever since President Nixon took the U.S. dollar off the gold standard in 1971.

Risks are indeed mounting. Inflation poses a threat. Interest rates are rising. The Fed is turning hawkish. But cashing out is unwise. Long term, stocks remain the best game in town.

I recently pulled an investment book off my shelf. I got reacquainted with its themes. It’s a dire tome. It warns of financial Armageddon because of corrupt politicians, rampant government spending, unsustainable debt, stock market manipulation, reckless monetary policy… it goes on and on. The author’s advice? Sell stocks, sell the kids, sell everything!

The book came out in 2010. If you had listened to this guy, you would have missed the second-longest bull market in history.

Friday Market Wrap

• DJIA: -2.54% or -665.75 points to close at 25,520.96
  
• S&P 500: -2.12% or -59.85 points to close at 2,762.13
  
• Nasdaq: -1.95% or -144.36 points to close at 7,241.50
  

Friday’s Big Gainers

• FTS International (NYSE: FTSI) +15.97%

Fracker upsizes IPO.

• Sony (NYSE: SNE) +5.78%

Investors cheer departure of CEO.

• Motorola Solutions (NYSE: MSI) +5.13%

Telecom supplier beats on earnings.

Friday’s Big Decliners

• Weatherford International (NYSE: WFT) -13.70%

Energy services firm posts losses.

• Westinghouse Air Brake Technologies (NYSE: WAB) -9.67%

Railroad supplier expects big tax bite.

• Laredo Petroleum (NYSE: LPI) -7.70%

Energy producer’s outlook disappoints.

Letters to the Editor

“The Fed this week hinted that it will raise rates more than expected. Should I worry?” — Adrian G.

When the Fed increases interest rates and squeezes credit, it causes money supply growth to nosedive, an unmistakable warning that a bull market will soon die.

Historically, money supply growth has exhibited a close correlation with stock price movements. An increasing money supply boosts stocks; decreasing money supply puts the brakes on stocks.

The Fed plans three rate hikes for 2018. Some analysts expect four hikes. It all depends on inflation. Wage growth is inflationary. Hence today’s rout.

Questions about rates? Drop me a line: mailbag@investingdaily.com

John Persinos is managing editor of Personal Finance and chief investment strategist of Breakthrough Tech Profits.