Jobs Data Makes Way for Earnings Season

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Includes: DIA, FOSL, HON, JOY, PCLN, QQQ, SPY
by: Steve Reitmeister
All the stars were aligned for the December Employment Situation to prove to one and all that the jobs picture was clearly on the mend. Unfortunately the report showed only 103,000 new jobs created which was vastly under expectations.
Granted there were some bright spots here and there such as the decline in the unemployment rate and positive revisions to past quarters. And those past revisions are a reminder that the soft December number could be revised up as well.
The good news is that the jobs picture is definitely on the mend. The only questions are about the magnitude and speed of the improvement. Only time will tell.
Bernanke also provided some good quotes Friday as he too believes economic conditions are improving. Here are some choice excerpts from his speech:

More recently, however, we have seen increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold. In particular, real consumer spending rose at an annual rate of 2-1/2 percent in the third quarter of 2010, and the available indicators suggest that it likely expanded at a somewhat faster pace in the fourth quarter. Business investment in new equipment and software has grown robustly in recent quarters, albeit from a fairly low level, as firms replaced aging equipment and made investments that had been delayed during the downturn. However, the housing sector remains depressed, as the overhang of vacant houses continues to weigh heavily on both home prices and construction, and nonresidential construction is also quite weak. Overall, the pace of economic recovery seems likely to be moderately stronger in 2011 than it was in 2010.

This coming week we turn our attention to inflation numbers. Hopefully PPI and CPI show us a step further away from a deflationary nightmare… which I think they will.
Also the investment world will be fixed on the start of earnings season. Most signs say that it should be another quality effort like we saw in October. That is good in the long run, but may not be so hot in the short run.
How’s that? If you remember we rallied nearly 10% in the month running up to the last earnings season. That created overly lofty expectations that were too hard for some firms to meet. So we saw many companies beat consensus estimates, yet see their share prices drop on the news (aka buy the rumor, sell the news events).
Certainly the strength of October earnings season was beneficial in the long run and was the main reason why we rallied into to the New Year. But here we are again coming off a strong December and pushing new highs. This may mean earnings expectations are too high once again. That is OK as long as we know that going into earning season and have the patience to hold onto our stocks that do thump estimates even if the share price does not immediately respond in favorable fashion.
Rest up folks. The next month will be filled with market moving events (earnings, GDP, inflation etc). It may be a bumpy ride…but should be profitable for those long the market in the end.
Take 5
This is where I share 5 of my favorite stocks that all have a coveted Zacks Rank of 1 (Strong Buys)
1) CNOOC (NYSE:CEO): Oil is rallying once again and will probably make a surge to $100+ sometime in 2011. CNOOC will surely be a beneficiary of this move and offers investors more upside potential then large US based peers.
2) Fossil Inc. (NASDAQ:FOSL): An improving jobs picture in time means improving consumer spending which would be a boon for a retailer like Fossil. But actually this company was already flexing its earnings muscle this past year. An improving consumer scenario in 2011 is just icing on the cake.
3) Honeywell (NYSE:HON): This diversified industrial firm is ready to double its earnings in 2011. That will certainly garner interest from investors. Also conservative investors fleeing the bond market will also appreciate the 2.2% dividend this firm provides.
4) Joy Global (JOYG): During the California Gold Rush of 1849 only a handful of miners got rich. However, the folks who sold them the picks and axes came out a heck of a lot better. Now with the big rise in commodity prices there is a new rush to extract more resources from the ground beneath our feet. Leading mining equipment makers like JOYG are already seeing the benefit on their bottom line.
5) Priceline (NASDAQ:PCLN): The shorts tried to gang up on this stock when it was around $200. A couple massive earnings surprises later, shares are above $440 and the shorts got crushed. As the consumer continues to mend, this leading provider of online travel services will continue to flourish.
Disclosure: I am long FOSL, JOYG, PCLN.