We have the worst estimate to actual job creation number in ages, a number that's so disappointing as to take you breath away. And it's not just some random Commerce Department number or purchasing managers' report or a consumer confidence number. It's the big enchilada: the Labor Department's non-farm payroll report. That's the biggest number we get, the one that has had maximum negative impact on the stock market when it's even a tad bit disappointing, as opposed to missing by a country mile.
On top of that you have the biggest semiconductor company in the world, Intel (INTC), signaling a worldwide slowdown by preannouncing a tremendous miss in sales and a meaningful decline in gross margins.
Oh, and let's slot in two price wars among the remaining growth areas in technology, the tablet and the smartphone. The best of the best-acting stocks, Google (GOOG), Amazon (AMZN) and Apple (AMZN), are all at war with each other, and that will most surely lead to price degradation and shrinking gross margins.
Put them all together, and how much should we be down today, considering the gigantic rally we had coming into this session? Well, we know we have to give up yesterday's gains, right, so let's lop off 2% from the S&P 500 from the get-go and take the tech-heavy Nasdaq down by 3%. But isn't that, in a way, too positive, given that what moved us up this week involved actions taken in Europe, not here, and surely a positive in Europe can't trump a negative of the worst possible kind, right?
In what may be the most strange reaction to the employment report and disappointing tech numbers that I can ever recall, we barely blinked. In fact, the averages spent a considerable amount of time in the green.
First, I don't for a moment want to hide my amazement here. This morning I did two "Today Show" stints, or "hits," as they call them in this strange biz -- like I Hit Matt Lauer or something. The first was at 7:10 a.m., when I confidently stated that we would most likely get a better-than-expected payroll number because of yesterday's inputs, the ADP payroll number -- hey, heck they have real data right off the hiring rolls -- the Challenger survey of layoffs and the weekly jobless claims. They were all rosy, and that, to me, meant that we had to create at least 10,000 more jobs than the 125,000 forecast. We can second-guess me all you want, but the reality is that almost every single service I follow took estimates up after that trio of positive precursors.
My second "hit" for the West Coasters, came at 7:01, a nine-minute move up, which is monumental in this business, especially the night after the president spoke at the Democratic National Convention, and I ate a similar number of crows to those that attacked the school playground in the movie The Birds.
Let's not minimize the disappointment or hide behind the move from 8.3% to 8.1% unemployed, because only in America would fewer jobs take unemployment percentages down.
So what happened to make the day relatively sanguine?
First, the Federal Reserve meets next week, and in the classic hedge-bet, bad-news-is-good-news story, we have to believe the Fed has got a present for us that might be better for the stock market than even a strong employment number. The Fed is potent when it comes to stocks, because it can create money, and that spills into more money to buy stocks. That's what has happened, as well as a more robust housing market, which also creates better profits for retail and for homebuilding, two important areas, as well as making credit more available for a third area, autos, hence the 14.5 million boom-time auto build we are experiencing.
Second, as much as we would like to think of ourselves as the center of the financial universe, right now the most important part of the universe, Europe, is its weakest link, and we are still in the rosy hue of the European Central Bank's action, not the gloom of employment. What's great for Europe's banks is good for our banks, and that sector's size and the Bernanke soon-to-be news stimulus actions will combine to overwhelm what employment does to the largest sector in the S&P 500.
Third, last night the Chinese pulled the trigger on some big stimulus projects that should help our industrial stocks. These projects -- roads, sewer systems, subways -- are right up the alley of a United Technologies' (UTX) Otis Elevator division, or a machinery business like Caterpillar (CAT) or Cummins (CMI) and a copper business like Freeport-McMoRan (FCX). All good, and all strong.
Fourth, as much as we might appreciate the good work over the years that Intel has done for the personal computer industry, the slow death rattle of the PC is with us in force. The weakness in PCs isn't a weakness in technology, it's a secular shift toward smartphones and tablets. The notebook, netbook and ultra-book, all key to the growth story at Intel, are starting to lose out to the tablet in such a meaningful fashion that it's hurting a PC-based semiconductor company.
How much is it hurting? How about enough to allow Apple, Google and Amazon, all beneficiaries of the downfall of the desktop, to keep up their numbers? That's why I am less concerned about a declining personal computer market. It is declining because of what these three titans are doing.
Finally, there is a sub rosa text to today's action. No incumbent president has been able to beat the rap of a high unemployment number since FDR. So there are plenty of prognosticators who have to take up the chances of a Romney victory, now that we've seen a terrible number so close to the election. Romney has got something to crow about, and that something is the most important number the government issues. Anything good for Romney is considered per se good for stocks, because Romney represents no increase in taxes for the rich who own stocks, including no higher capital gains and dividend taxes, as well as a lessened regulatory environment that will help the banks and improve the prospects of the oil and gas industry.
So, you put them all together and you get worse-is-better help from Ben Bernanke next week, a European boost that avoids a devastating Lehman-like outcome, a change in Chinese policy that produced hope, and a higher stock market, by the way, that helped industrial companies, a recognition that Intel's problems are specific to Intel and a revised chance of a GOP candidate, and that makes for a stock market that wasn't crushed by a number that often does a whole lot of crushing.
Suffice it to say that the employment number is real bad for the president, but we aren't investing in whether it is easier to get a job, we are investing in future profits and stability for our companies, and that went up, not down, in the last 24 hours.