Weak jobs report is not all bad for investors

Investors — and job seekers — won't cheer Friday's jobs report, which showed that just 74,000 more people were employed in December, vs. 205,000 expected by USA TODAY's survey of 37 economists.

The report was a disappointment for anyone hoping that the economy had turned a corner. Rising employment means that more people have money to spend, and that, as they become more confident about the economy, they will be willing to commit to bigger purchases in the future: major appliances, cars and even houses. And corporations have plenty of cash in their coffers to expand and meet future demand. But the jobs numbers don't reflect that yet.

BIG MISS: Economy adds just 74,000 jobs in December

But you should be aware that bad economic news isn't bad news for all investments. The bond market, for example, is only happy when it rains. Bad economic news means falling rates, which will drive up prices in the bond market. The yield on the 10-year Treasury note fell to 2.90%, and bond prices rose.

INVESTING: Choosing the best bond fund for 2014

The stock market, to some extent, has already discounted some of the good news on the economy. The average stock mutual fund gained more than 30% last year. And, measured against earnings, stocks are reasonably valued.

The Standard and Poor's 500 stock index sells for a price-to-earnings ratio of 17.44 times its previous 12 months' earnings, vs. 16.89 since 1935, but 24.58 since 1988.

FUNDS: Mutual fund investors celebrate 2013

Nevertheless, there's plenty of room for the economy to expand, and for corporate earnings to expand with them. Even with Friday's report, the economy still has about 880,000 fewer jobs than it did at its peak in December 2007, says John Lonski, chief economist for Moody's Analytics. Another 26.5 million Europeans are out of work, indicating that those lucky enough to have jobs won't be getting much of a raise this year.

With savings rates near zero and bond prices expected to fall, stocks remain! the best option for most long-term investors. Given 2013's run-up, another 30% year in stocks seems unlikely. But even a 5% return would beat the expected returns from bonds and money market funds. Aggressive investors might consider health-care stocks, which soared in 2013 and are no longer cheap. But they do have the benefit of huge profit potential from breakthroughs in biotechnology, and sizable dividends in the big drug makers.

Those looking for more prosaic gains should stick with diversified stock funds, especially index funds, which keep expenses low and pass the savings on to shareholders.