The Daily Dose: Gird Yourself for the Jobs Report

 | Jan 08, 2014 | 12:00 PM EST  | Comments
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Stock quotes in this article:

twtr

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bby

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cat

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joy

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gld

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sbux

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nflx

Before I share some macroeconomic statistics ahead of Friday's jobs report, here are a couple things to chew on:

First, sell-side downgrades are raining on last year's high-flying stocks to begin 2014. For those names whose valuation has outrun reasonable forward growth estimates -- such as Twitter (TWTR) and Netflix (NFLX) -- the shares have responded harshly. Even Starbucks (SBUX) and Best Buy (BBY) are coming in a bit. The market is sending a signal that valuations has reached full capacity among stocks that folks bought during a period of massive liquidity. That's the situation, at least, pending more evidence that the U.S. economic engine is revving up -- and given that there will be less liquidity sloshing all over the place.

Second, on the coming release of the Federal Reserve minutes from the December meeting, what you should first examine is what item, or series of items, triggered the dreaded tapering of quantitative easing. Then you should zero in on the qualifiers for further Fed tapering.

Returning to the December employment number, this particular report has a certain strange aura surrounding it. On the one hand, if it says the U.S. created north of 200,000 jobs, these numbers will raise concerns about a faster Fed tapering than what is currently baked into stock prices -- which, at the moment, foretell a conclusion of the program by the end of 2014.

But if the number doesn't beat the 203,000 consensus forecast, the result will be seen to perpetuate this dark undercurrent that will constrain the recovery. Such a number would call into question expectations even for modest expansion in the average price-to-earnings multiple and accelerating earnings growth for S&P 500 companies.

Here is a small sampling of stats to have ready ahead of the first big-time report of the year:

• U.S. unemployment is a full 2% above where the number stood in December 2007, the month when Great Recession technically began. That is a big gap -- and, not only that, but the driving forces of the drop in joblessness are disheartening rather than inspiring.

• For every job opening there are three applications. It remains an employer's market, and that prolongs the wage constraint -- which, in turn, holds back a quicker economic recovery.

• Long-term unemployed clocks in at 37.3% of total employment. That is a staggering number of people that are basically categorized as "scarred" among human-resources departments.

Chart of the Day: Dirt and Metals

After the advance of gold prices, we saw sympathetic moves in mining-equipment makers such as Caterpillar (CAT) and Joy Global (JOY), in dark green and brown on the chart below. These rallies seem a tad overdone in light of the latest batch of China macro data. Proceed with caution on companies that increasingly disappointed in terms of their financials and outlooks last year.

Source: Yahoo! Finance

(SPDR Gold Trust (GLD) is in blue, the Dow is in red and Komatsu -- a Japanese name with substantial operations in China -- is in light green.)

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