A small secret worth sharing: I operate in the financial Twilight Zone as a rogue agent who must do battle with many formidable, ever-changing foes. Time is a foe: You pen an opinion at 8 a.m. EDT and it stands to be utter rubbish by the session open. You make a stock call on Feb. 6, 2012, and it's sucked into a Google (GOOG) loop, never to disappear. You miss a sliver of daily trading action, and the ensuing few weeks could make you appear dumb.
Luckily I am mentally tough as nails -- 'cause, lemme tell ya, it's fierce out there. One of the most difficult things for me has always emerged on jobs-report Fridays. On Thursday night XYZ seems valid -- yet, after the employment figures, the view has become completely off-base, or far enough from the mark to prompt one to head back to the drawing board. So, henceforth, on each jobs-report Friday there will be a "Black Box" column -- a chronicled collection of before and after thoughts on the market and its direction.
Before: Negative on the market, but finding encouraging indicators.
Date: Thursday, Nov. 1, 2012 11 p.m.
● The feeling in the market is that, once we are beyond the U.S. presidential election, stocks will enjoy expansion in their price-to-earnings multiples, to be followed by upgraded earnings estimates. Those very weak corporate new-order rates will no longer be an issue. Arkansas Best (ABFS) said it has slashed tractor replacements by 8% due to economic conditions? This decision will be reversed inside a day.
Hold those horses. Nowhere is it written that any of this "uncertainty" will be wiped clean with a run to the ballot boxes, nor that enough "uncertainty" is deemed positive certainty to the extent the market wants it to be. After all, Europe, pending a solar-system upheaval, is still with us in present form.
● The market loved the Institute for Supply Management manufacturing index. It was a supposed euphoric read on the economy and a potential recovery. Instead, I say it showed weakness in machinery, transportation equipment and electrical equipment -- the goods required to build a fallen economic pyramid. I think the ISM report actually supported the negative tone of earnings season, from results to guidance.
Here's some fun new evidence, finally, that the market is oversold. There were at least four things that caught my eye on Thursday, most of which were clues sniffed out from the market's post-Hurricane Sandy session.
1. Steel stocks reacted positively to China news, reversing course starkly from the sympathy decline Wednesday due to U.S. Steel's (X) earnings -- the China purchasing managers index joins forces with U.S. Steel's shift in tone on pricing dynamics near the end of the quarter.
2. Cummins (CMI) built on Wednesday's session, though the company's earnings were not gangbusters by any stretch of the imagination.
4. Wal-Mart (WMT) ceded ground on an outside chance that consumers will visit more discretionary retailers for the holiday. I do caution, however, that the stock could have been smacked around from Target's (TGT) merely adequate month of sales.
The After: October Jobs Report, Flash
So, what will transpire between now and Election Day is intense dissection of the October employment report. In fact, you may lay eyes on a ton of new statistics and comparisons that have been designed to drive home a point. The real deal is that it's a bunch of word-and-number plays on the foundational aspects of the data set. I think the bedrock of the report lends validity to the more positive attributes of the market, delineated above, so it's OK for you to buy stock off your watch list. If one essentially becomes constructive on the market into an election, that will bring certainty (one particular guy gets elected) and a potential win-win scenario regarding the fiscal cliff. It's time to roll the dice, stud.
Here's how the jobs report supports the new bullish indicators.
● We saw month-on-month acceleration. Considering also the September revision, plus the upward revisions, these numbers align well with comments from select bellwether industrial companies on improved order and price patterns at the end of the third quarter. Also, the factors explain -- and justify -- positive surprises in sales and profit from best-in-show retailers during must-shop periods.
● The market will perceive October as being at risk for an upward revision in the November release.
● The report is not hot enough to relinquish the Federal Reserve from its monthly money handout, so this has potentially created a possible sweet spot for the market in terms of perception: Fed accommodation plus jobs growth inside a tight band.
● Leisure employment surprised me, and I know it may whacky to say, but it suggests a degree of stabilization to the situation in the European Union -- that is, policy decisions may be finally transmitting to the real economy.
● Manufacturing could have been worse, given the regional report reads and earnings calls, but it wasn't -- and that is another plank to the China recovery story.
Quick stock call: I remain a fan of GNC (GNC), especially off the pullback.