Plenty of pundits are saying that the jobs number released on Friday isn't pertinent. But not Jim Cramer.
After the Labor Department released new data that showed the economy added just 74,000 jobs in December "others said investors should throw away the number, that it was an aberration," Cramer noted. After all, estimates were for 200,000 jobs and the ADP report released earlier in the week was substantially higher.
Whether it's an aberration or not, Cramer thinks investor would be foolish to discount the latest jobs number. In fact, his proprietary research suggests no piece of economic data influences Street sentiment more.
And he believes the price action in the bond market immediately following the release of the jobs report confirms his outlook.
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After the release, "Interest rates pulled back dramatically," Cramer explained, "with the ten year rate falling from almost 3 percent to 2.8 and change. If the number didn't matter so much, believe me you wouldn't have such a decline in interest rates to levels not seen for a month."
Cramer interprets the rate drop in the bond market to mean institutional investors think the economic recovery is facing significant headwinds. And he thinks the sentiment is about to ripple across the stock market as well.
Therefore, Cramer is looking for a rotation.
"I'm looking for a rotation out of sectors that do well as rates moves sharply higher; specifically the industrials and the banks," Cramer said.
Industrials rally on higher rates because investors take those rates as a sign of robust business activity, and the banks rally on higher rates because they're able to make more money on your deposits.
Instead, Cramer is looking for a rotation into classic growth.
"These are stocks that can do well when the economy is growing at a nice pace, not too fast, not too slow," Cramer explained. (Earlier in the week, Cramer said companies such as Johnson & Johnson, PepsiCo and Celgene were textbook examples of classic growth.)
That's not to say earnings won't also impact the market. Cramer thinks they will. However, Cramer suspects the jobs number will have a lingering effect even as the Street moves into the heart of earnings season.
Therefore, "I suspect it's time to temper your enthusiasm," Cramer said. "That what I'll be doing until I see something that tells me, definitively, that things are getting better. And I am sorry to say that I don't have any indication that will be the case any time soon."
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