The Day Ahead: Look Well Beyond Jobs

 | Jan 04, 2013 | 8:05 AM EST
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I'm guessing folks will have a hearty appetite to read as much as humanly possible on the December employment report. While I definitely appreciate that, poring over another jobs rundown would do none of us any good.

Why? Take a step back. After this historic week -- and assuming you, too, dumped stocks last month -- are you honestly able to say your portfolio is well-positioned to rock out in the next month, six months or, heaven forbid, the next year?

My suspicion is that many people have been attempting to catch headlines and trade accordingly, as they feel overwhelmed by divergent opinions on hard-to-grasp concepts. This is precisely the reason I am shying away from the #NFP predictions game and, instead, have decided to outline three secret messages that have been delivered since at the start of 2013. Over the coming weekend, these are the prevailing themes you should use to find stocks that fit for your preferred investment time horizon.

Theme 1: Consumers Hold the Golden Ticket

I despise the comment that says, "The U.S. consumer represents 70% of the gross domestic product." It's an extraordinarily dated statistic, and is usually dropped by an individual who is no longer doing the research but, rather, has numbers fed to them in written form by a recent college grad.

But, for purposes of keeping it simple, this number is of interest, given the recent holiday-sales reads from major retailers. I'm not sure about you, but I've learned the following:

1. Underlying consumer spending has entered 2013 with modest momentum. That's indicative of first-half GDP growth of 1% or less in 2013, and it confirms shocks to confidence reports.

2. This looks like a noticeable consumer-spending slowdown due to dark, thick tax clouds and disappearing wage income. That carries negative ramifications for companies indirectly involved with the consumer -- for example, FedEx (FDX) and Swift Transportation (SWFT), the latter of which is a trucker for Wal-Mart (WMT). (Yes, I know, FedEx has a massive restructuring plan that will magically offset any top-line weakness)

3. If Family Dollar's (FDO) increasingly unfortunate news flow is a good marker, low-income consumers are heading to a worse spot than that seen in the 2011 inflation zone.

My advice is that you scour the retail complex for domestic-centric names that unduly rose Thursday, such as Aeropostale (ARO), and hit the short button for a portfolio-augmenting trade. If you're inclined to go long and strong the consumer as a contrarian play, roll with a stock like Nike (NKE). That company has a runway of easy comparisons ahead and is globally diversified.

Theme 2: Respect the Market's 'Tells'

Investors tend to become enamored with the optics of a huge market session such as what we scored Wednesday. However, amid the hype, they tend to lose focus on what the market is conveying through its outward exuberance. As a result, they will likely lose confidence in any tangible signs of encouragement that come with even the slightest taste of negativity. (This works the opposite way, too).

At the moment, we should respect the following:

1. CEOs lobbying on Capitol Hill are attempting to maintain investor expectations via their continued complaining. However, the truth is that this newfound certainty -- the kind found in the lame piece of cliff legislation that just passed -- unlocks action plans to gain market share, grow for the future and pull back on the dreary commentary tone that was offered in the third quarter of last year.

2. Fear still permeates the market. That is the cement that helps build the mythical wall of worry for investors to climb -- right into an earnings season characterized by all eyes being fixed on outlooks, instead of the actual quarterlies. Those outlooks, by the way, are shaping up to be in-line, which is a positive.

3. Companies are prepared to hold on to their shareholder bases by pumping out dividend increases and share buybacks. That could be an interesting combination if the economy averts recession in the first half and re-accelerates in the second (the current baseline expectation), especially as it regards potential expansion in net margin and price-to-earnings ratios.

Theme 3: Study or Get Eaten Alive

Here's the bottom line: In 2013, the Federal Reserve is going nowhere with respect to its abnormal quantitative-easing efforts, and that was set in motion by the array of drastic actions and forward guidance provided at the last 2012 policy meeting. Don't be fooled by this chatter of policy members perhaps signaling concern on inflation. There is no real evidence of anything but the fact that enough economic slack remains to suppress personal incomes.

So I conclude the week constructive on stocks, to use a bit of jargon. As for #NFP, the ADP basically removed a sub-100,000 print from the equation, which would have dinged markets. Should we see a number north of 150,000, views of a second-half growth re-acceleration will become emboldened, as will a belief that the economy stands to break free from Uncle Sam's shackles by the second half.

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