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Jobs, Jobs, Where For Art Thou

Today's S&P 500 Chart

Today's S&P 500 Chart

All week we’ve been hearing about the big growth in jobs that would be reported today. Wednesday, President Obama even stated it in a speech. But, it was not to be. The economy only added 41,000 jobs in May – not the stuff economic recoveries are made of.

The news sent the S&P 500 down over 3% as I write this – just not a pretty day.

I caught a lot of heat from some of the readers of this blog when I made my 2010 Economic and Market Forecasts at year-end. I noted that I thought we’d more likely see 11% unemployment before we saw 8% unemployment, and that the Federal Reserve was unlikely to raise short-term interest rates until the unemployment rate got somewhere closer to 8%. There were a lot of people on the TV saying that unemployment had peaked and that we were going to see a return to much better employment levels due to the economic stimulus the government had enacted. At that time, I didn’t see where the jobs would come from and I still don’t as that stimulus package did not target economic growth but instead focused on easing the pain of the economic downturn through increased Medicaid and unemployment benefits – the Congressional Budget Office even noted that only 12% of the plan was aimed at any sort of economic growth.

The shock of today’s report in the face of all the calls by economists and the government that the number released today would be wildly positive and reflect a strong economic recovery seems to be more than investors can take. Thus, the sell off.

Many big companies are down more than the broader market. As I scan my lists of the stocks I follow, I see that Parker Hanifin is down 6%, Agilent Technologies is down 6%, Bank of Montreal is down 4.5%, Charles River Labs is down 5%, Emerson Electric down 5%, Foster Wheeler is down 8%, Met Life is down 7.5%, yet the oil spill culprits of BP and Transocean are down 1%. It’s a bizaro market today.

As we head into the last hour, the program trading routines will likely kick in and potentially could accelerate the downside or push us up. Who knows – things right now are not logical. In a situation like that, the best plan is to stick to your strategy (which we are) and watch the action.

We bought some Cenovus Energy today and some Kraft but that is about all. Cenovus is focused on Canadian oil production – far from the Gulf of Mexico – and was sold off with the producers of oil from the Gulf yet will not be negatively impacted by any moratorium on drilling – rather it should be positively impacted by the increase in the price of oil if supply from Gulf production is taken out of the world’s daily demand. Kraft with its nearly 4% yield and > 15% earnings growth fits our barbell strategy of cash flow and high earnings growth, two things that will be key outperforming the broader market as we fight our way through this secular bear market.

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Enjoy your weekend and I’ll be back with more thoughts on the market.