Foundation of the rally is built to last

Moves that begin with when employment turned up show meaningful staying power.

By Jim Cramer Feb 4, 2013 10:12AM

thestreet logoMilestones do matter, if the milestones are reached based on something substantive, and there is nothing more substantive than healthy payroll growth, as we had last week.

 

The actual number added, 157,000, plus the revisions, puts us in a solid position to go to all-time highs and beyond and I think we will do just that. And, we will do it much faster than most people, including many of the featured writers on Real Money, expect.


That's OK. Real Money has never been known for its uniformity and I have always felt that its hallmark of duking it out and squaring off makes you a better investor.


As part of some longer-term work I am doing in conjunction with a review of Action Alerts PLUS for the last five years, I have been honing in on what data, what numbers, what pieces of evidence have staying power vs. what inputs are relatively meaningless, even as they seem to have terrific import.

 

I started with the presumption that there were dozens of indicators, numbers and quarters that could have meaning to the market. I tracked each one through the last five years to see if the moves subsequent to them had any real oomph behind them.

 

Bull figurine on ascending line graph and list of share prices Adam Gault OJO Images Getty ImagesIt was a shocking exercise. The only one, and I mean the ONLY one, that mattered was employment. Moves that began when employment turned up or seemed to turn up -- employment as expressed by the payroll numbers -- showed meaningful staying power.

 

Nothing else, not PMI, not retail sales, not durable goods, not consumer or wholesale price data, not Fed minutes and not any particular quarter or quarters, even from stocks we all track as bellwethers.

 

The consistency of it was astounding. The beginning of the unraveling of this market after we hit the highs came after the hideous payroll data, sharply worse than expected.

 

When subsequent numbers and revisions confirmed the weakness, we got hit again. And again. And again.

 

We did not get stabilization in the market until we saw a deceleration in the rate of joblessness. The bottom, literally, was put in when we got several consecutive payroll numbers that simply weren't as bad as the last ones.

 

The upswing began in earnest, again, in lockstep with better employment numbers. It was almost uncanny how simple it all was. You could tune out every other piece of data.


That's why I believe these Friday numbers will create a foundation that is built to last.

 

The conditions are about as bountiful as they were parched when we visited these levels on the other side last time. The multiples are appreciably lower and the earnings power tested in much leaner times. Try as the bears might say, the bond market's competition is nil. Some negativists are trying to say that the stock market will somehow be dinged by a takeout of the 2% level on the 10-year. I think that's fanciful. One hundred basis points higher won't damage a tape that is founded on employment growth.

I know there will also be people who are so Fed-centric that they will regard the employment number as somehow a negative because we might "lose the Fed."

 

Nonsense again. Sustainable rallies, at a certain point, don't need the Federal Reserve. We just need earnings and dividend boosts and a clear path for global growth. We are on the verge of that.

 

The one thing that is indeed different this time is the lack of stock available for large accounts to buy.

 

Many have tried to make heads or tails of retail investors coming back. To me, the nascent return, the one we have seen since 2013 began, means nothing. Because of the buybacks I don't think it will take that much additional firepower to take us higher. Companies will compete in a meaningful way with these buyers as the cash they have on hand doesn't really have another home.

 

I am sure to many this whole thesis is antithetical. The endless tarring and feathering of the bulls for not understanding either the tape or the macro doesn't disturb me. That's because the rejectionists will ultimately provide the fuel we need to go another 1,000 points in the Dow, if not more.

 

Let me leave you with one last thought.

 

Sure, we are supposed to bet against retail. That's ingrained. But you don't bet against them in one month. Maybe not even one quarter, or even a year. Yes, it has been that long since retail's been in stocks.

 

But the most negative cohort has been the analyst community. Stephanie Link, co-portfolio manager of Action Alerts PLUS, and I marvel almost every day at the downgrades. They downgrade on valuation. They downgrade on macro concerns. They downgrade on a revenues being light, even if the bottom line is terrific.

 

They downgrade on anything.

 

They are the ones who are going to be dragged back kicking and screaming. You want to know when to sell? When those who downgraded here begin upgrading.

 

Talk to me then.

 

Maybe then I will be the one who downgrades. But certainly not here. Not now. Not with this fundamental base at last in place. Built to last, people. Built to last.

 

cramer

 

Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust.

 

 

 

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45Comments
Feb 4, 2013 11:17AM
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Looks like Cramer just called the top. How positive was he when the DOW was at 7000 4 years ago? He waits for the DOW to double during a 4 year run and NOW talks about a solid foundation. The DOW had a solid foundation 4 years ago. Not now. When everyone talks about the end of the world THATS when the foundation is built to last. Now its built to crash. Again.
Feb 4, 2013 10:41AM
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so then, your discovery is "when employment is good, everything else is good". 

 

gee.....who'd have thought?

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let's take a hard look at that 157,000 new jobs added.

 

First 90 percent of them are minimum wage which means they contribute no new taxes to the IRS and they are low enough paying jobs that not only do those people qualify for food stamps they also will qualify for paid health insurance next year. So they are getting about $10,000 a year in minimum wages and going to qualify for $3,000 in food stamps and $8,000 in health care so they are going to cost the Federal Government $11,000.

 

Yep those jobs are really going to get us out of the hole --- nope they are going to dig the hole deeper.

 

Next the 157,000 new jobs are just keeping up with the new population that needs jobs it will not address the 35 million Americans not working now. For that to be meaning full 15 million jobs need to be created a year which is 1,250,000 jobs on top of the needed 157,000 or about 1,407,000 call it 1.5 million jobs need to be created a month.

 

We are only at 1/10 the level of new jobs that we need.

 

Pretty much the stock market is being held up by the Federal Reserve and that will not last out the year.

 

By years end the stock market will see the DOW at 2,000 if not zero

 

This is the year the plug gets pulled on the US economy.

 

Obama will get his wish which is the total destruction of America.

Feb 4, 2013 10:50AM
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I truly enjoy reading an article on how the market will reach new highs when as the article is posted on-line the market is down 112 points.  I know one day is not a trend but still;

Great stuff Jim.

Feb 4, 2013 11:04AM
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America has never been in soo much debt yet the Internationals have never had sooo much cash on hand, in the closet, or given so sooo much to soo many  politicians.  I couldn't help but have a cynical grin when a late Thursday afternoon article last week mentioned the Obama administrations new tax policy recommendation allowing Internationals to not have to pay US taxes on overseas profits.  After demonizing Romneys legal offshore tax maneuvers as immoral we now hear Obama recommends these policies are to be institutionalized for those Corporations willing to "play ball"  with the New World Order and the annihilation of the American Worker.  This is what spurred the Markets on Friday!
Feb 4, 2013 11:30AM
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In case no one else said it...If cramer beleives all is great, then a BIG down trend is surely in the works

Feb 4, 2013 11:01AM
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These employment numbers are pathetic. They use numbers of jobs added without thinking or saying how many should be added. If you equate in the retiring boomers only the numbers quickly become anemic.

 

10,000 per day retiring.... Lets say only half of that do 5,000 per day X 30 = 150,000 open jobs per month.

 

Feb 4, 2013 12:20PM
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I recall the justification for the immensely over exuberant immoral pay policies for bankers in the 90's and early 2000's was required to attract and keep talented and experienced managers.  What a crock. How did that work out?  Oh yea the correct politically hacker answer is it would have been much worse without them. Much like expecting International Corporations to not collude at the expense of the American worker these slogans are but political  "posturing" and need to be recognized for what they are. What we truly need is less politicking and more honesty, fairness, and social responsibility. If a corporation has 100 billion in the bank something is already very wrong. Where are the dividends?  The old days of living for the share price are in the rear view mirror.  Investors need to demand and vote for their share. With  the country on a financial course for disaster something doesn't smell right?  So we continue down the merry path of believing all is well and that having more and more wealth continuing to be hoarded by the elites is okay because it will eventually be shared willingly as an investment with/for the shareholders as dividends?  Trickle down or just plain stupidity?  Having been friends with a few ultra rich folks I am confident in saying the rich are primarily concerned with either of two action.  Protecting what they have or making even more.  Preaching social responsibility to internationals and the rich is like pi$$ing into the wind.  They consider their rules as having been already bought and paid for.
Feb 4, 2013 11:58AM
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The Euro weakens in lockstep again with US stocks - what a shock.  They decoupled for 1 day last week, but the play is back on.

A foundation is in place?  Remember the 3 little pigs who built their houses out of straw, sticks and bricks?  Our economic house was built with paper, and lots of it.  And when the big bad wolf shows up, all the dumb Keynesians will be lining up outside with their pants down, thinking he's there to huff and puff and blow them.  Stupid Keynesians.

Feb 4, 2013 11:48AM
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Has Cramer lost his mind?  How does one get such a good paying job with notoriety for knowning so little?  His stock market predictions always seem to be "a day late and a dollar short!"
Don Moore
Feb 4, 2013 11:09AM
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Chuckle more Evil Chris... Cramer says nothing whatsoever about HOW payroll growth sustains as economic footings go down the drain. 100% of payroll for the last several years was funded by Fed fiat, not TRUE cultivation-to-sale profits. Even though we are assembling imported parts and calling it manufacturing, our overall self-sustainability is still ZERO. Heck... we just dealt with Mexican farmers undermining Florida tomato farmers by selling below the cultivation-to-sale actual cost. That is using the Chinese business undermining method to destroy an indigenous undermining concern (Florida is growing tomatoes that could be cultivated everywhere and generate uncounted local enterprises and jobs). Fatal flaws do not stablize economies. We obviously STINK with Harvard mentalities in wrong roles driving us faster off the edge. Today validates everyone who KNEW last week was a set-up for profit-taking. If you're in. you're dim, stupid or greedy. The Exchanges are controlled manipulated and Hell-bent on winning, even though winning this means losing everything else.
Feb 4, 2013 12:47PM
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Well, at 1140 hrs scumbags started accelerating the selling....Not a real surprise, this is the way things will go throughout the day...Best play today is the sidelines...This whole week will be very similar....Play it safe and smart...More later.
Feb 4, 2013 1:53PM
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Anyone thinking a crash is good for this market is in error.  Market folks need volitility to thrive.  They need folks trading shares and involved.  A market collapse results in fear and talk of capitulation and that stuff scares folks away.  These wide swings when under control believe it or not are good for the market as folks are actively engaged in "THINKING" about what is or isn't in play.  This article by Jim is not at all positive or comforting.  Let us be honest.  You can make a lot or lose in this or any market.  The idea that we will be continually riskless to the upside is as stupid as continually thinking  riskless to the downside.  The magic is in "seeing" imbalances and taking advantage of them.  My opinion is we now have more risk or are imblanced to the upside than the downside.  JMHO
Feb 4, 2013 12:12PM
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Like we said on friday afternoon, this week will be a bit different; manipulators out of the gate doing their thing so they have dropped us big already...Not a big shocker after the last few weeks...Play it safe today, be defensive, stay on the sidelines if possible...These crooks will try to bring us down huge by closing time, no doubt about that....More a bit later.
Feb 4, 2013 1:38PM
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So the employment is good, is on the right track, but the unemployment went up 0.1%.

Another article, cannot remember by whom, said that this is because of the new workforce (recent graduates …) entering the field; this seems like a reasonable explanation.

But when the new jobs added are increasing but slower than the number of unemployed people then you can end up with a “strong” economy but the unemployment goes higher and higher; not a good sight but possible.

The employment is good for the analysts that have a “sound” logic, or an interest in their own investment, hoping that some will follow their advice.

Feb 4, 2013 12:56PM
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I'm not sure that Jimmy is right, but it's a good article.  The correlation to employment is certainly well-known, but the message that a lot of this other newsworthy garbage doesn't amount to much is a good point.  The trouble is, employment can turn down again.  The market seems high to me, or at least fragile and vulnerable to any really bad news.  Maybe not a long-lasting effect, but you can lose a lot of money in a short period of time.
Feb 4, 2013 12:01PM
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"Why don't they put some trade tarrifs in place and bring home some good jobs here for regular people... how are they ever going to build the tax base?"

 

It's actually worse than that. I cannot write enough about the stupidity of Emergency Financial Managers inflicting paper-based cancer on cities nationwide. Where are the Emergency Small Business Animators? Where are the Emergency Career Recoverers? Where are the Job Creators? We see "numbers" but we know factually that most data is spun. As a Lender for years, I was subject to be diverted to the bookkeeper or accountant for "data" on why the business was failing, but more often than not, stepping out of the office suites to the operations told me all I needed to know about why the business was failing AND how to revive it. Sure, my rants about this and that piss off dim-witted money grubbers, but rarely am I wrong about the course of degradation. WE... that is every American... needs to see bureaucratic relief and a war on paper and button pushing. Anyone not thinking the social network and connectivity isn't driving us to a ruin we cannot recover from- is probably overly absorbed and entranced by it. 

Feb 4, 2013 11:28AM
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Somewhat true...Thousands of boomers and/or others retiring from the workforce..

The others being...: Being people far past "boomer age" or some other reason that younger people may be leaving the work force such as pregancy, family reasons or movements even to other Countries ??

For education, jobs, relocation or travel...

 

For decades these retirements have played into "workforce adjustments"; Not really anything new.

But there are probably a few more then normal, because of the boomer and after War's ramp ups or Techno Explosion in the 60s-80s...A lot of people were employed at a higher rate, then anytime in our History....And we still had a lot of Manufacturing base..

All that has changed in the U.S.A. that we know today..?

Feb 4, 2013 12:54PM
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wELL cgt1....i NEED A LITTLE LOWER TAKE BACK (found it) today, been working some limit orders on this correction...DCAveraging on an Auto company...

And gonna do some speculating on a Bio-tech...I'm trying to be as careful as I can..In this Obama Market...taking your advice...cgt.

Who didn't EXPECT a correction or dip..Everyone has been discussing and yelling it over and over.

 

I don't know about a Foundation or a sure thing,?? But I will give Cramer credit for mentioning it..

Someone has to, and if he is wrong; You can all yell at him later..I'm sure some will.

I'm sure we will get some bigger dips down the road, but a crash as some want to call for,I just don't see it coming anytime soon...But keep talking AND maybe you will be correct someday ??

Just like Cramer...

Feb 4, 2013 2:27PM
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If we make it past next Friday and the Asteroid or Meteor passes us..WE WILL BE OKAY...imo.
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