March jobs report proves a just-right mix

March's jobs report was a just-right brew for stocks, strong enough to show an improved hiring picture but soft enough to keep the Fed from moving quicker to reduce monetary stimulus.

But that didn't stop the market from selling off after the report, which disappointed traders' high hopes for a sharp spring back in hiring and was well below Wall Street whisper numbers.

Nonfarm payrolls for March totaled 192,000, slightly below 200,000 forecast, and the unemployment rate was 6.7 percent, above the expected 6.6 percent. However, revisions to January and February showed stronger job growth, with January higher by 15,000 to 144,000 and February at 197,000, better by 22,000 jobs, the Labor Department said Friday.

The payroll number misses the mark for traders who thought the report would be far better, with whisper numbers at 220,000 to as high as 250,000.

"I just think the overall jobs number was not far from expectations at all, and if people were betting on a real bullish number for equities, they're trimming," said Patrick Boyle, a trader with BTIG.

An employee works on the automated teller machine production line at the Diebold Inc. manufacturing facility in Greensboro, North Carolina.
Ty Wright | Bloomberg | Getty Images
An employee works on the automated teller machine production line at the Diebold Inc. manufacturing facility in Greensboro, North Carolina.

"The expectations were building. ... It only meets expectations. It wasn't like a blow-out number," said Jim Paulsen, chief investment strategist at Wells Capital Management. "I think it does nothing to the Fed. They're going to continue on the same path. I think it's good enough to give a bid to this market. It's not going to race ahead, I think we climb over (S&P) 1900 and keep on going."

Read MoreJob market bounces back as weather effect wanes

Stock futures were initially higher after the report, but stocks weakened and traded lower after the Nasdaq slumped with biotech and other momentum names. Bonds rallied, with the 10-year yield dipping to 2.72 percent. The dollar fell.

"This kind of confirms their view that it was more weather than anything else," said John Canally, investment strategist and economist with LPL Financial. "I don't think we've gotten back to where we were before bad weather. April, May and June need to show we can back to that consistent 200,000. We're not there yet."

Richard Bernstein, CEO of Richard Bernstein Capital Management, said, however, the weather effect is still not totally clear, but job creation is now running close to its previous pace.

"It's a Goldilocks number. It's not too cold. It's not too hot. If this number was as hot as people were talking about, the market would have tanked," Bernstein said. "From a market perspective, you want slow and steady improvement."

The employment report is one of many data points watched by the Fed, but it is viewed as a critical component in its policy decisions. Therefore, the jobs number will also help shape market expectations for the Fed's wind down of its quantitative easing program and ultimate move to raise rates, now expected in 2015.

With the March number, the Fed is not expected to accelerate the $10 billion a month it has been reducing from its monthly bond buying program. Traders have speculated the Fed would speed up the cuts if the economy shows signs of strength and improvement.

—By CNBC's Patti Domm