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January 13, 2014  Mon 8:12 AM CT

SPX: SEE CHART GET CHAIN FIND STRATEGIES
No two ways about it: We got a disastrous unemployment number from the Labor Department on Friday.

A 74,000 gain in payrolls, even after discounting whatever you may think is right for retail sales in the holiday season, is unbelievably disappointing. It is also out of sync with pretty much everything we have been hearing, including the ADP employment report that came out Thursday, which showed 238,000 jobs created.

Almost immediately we heard calls to throw away the numbers or to average them with others, as well as folks saying the survey wasn't accurate. But I think that these numbers do matter. Why? Because the bond market said they matter, and interest rates pulled back dramatically. The rate on 10-year Treasuries fell from almost 3 percent to 2.8 percent 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.

More important, this number matters tremendously to the stock market. In doing research for my new book, "Get Rich Carefully," I spent a tremendous amount of time analyzing the impact of the employment numbers on the stock market versus other indicators. You can throw out every other indicator out there--commerce numbers, retail sales, durable goods, housing. The only statistic with lasting impact is the Labor Department's monthly payroll report.

Let's also be clear that it's the job-creation number that matters, not the household survey, which is heavily skewed by people who drop out of the job hunt for whatever reason. While we are at it, my data shows that you should never put any stock into the ADP number, which has been proven worthless as a predictor and therefore downright irrelevant.

TheStreet.com logoSo what does this number mean? First, it signals a rotation out of consumer cyclicals and the banks, both of which need higher interest rates--and out of the industrials, because strength here would be a sign of robust business activity. It also means a waning ability for the banks to capitalize on rising rates and make more money on your deposits.

Among equities, that money will now be headed to the classic growth stocks--something that had been happening "underneath" the market indices all week. Stocks tend to be more prescient than we think.

I think the rotation will be intermittent, because we are about head into earnings season, and for 12 weeks of the year those reports control a lot of the stock movement. Furthermore, my work shows definitively that you need not one, but two back-to-back employment numbers to signify a real trend.

Still, the weak employment number makes sense when you think about all of the weakness in retail--remember, it can't all be weather-related--and the recent precipitous decline in the Baltic shipping index.

This all adds up to a mixed bag. Amid this, bulls have to hope that bad news is good news, at least for the higher yielders like the real estate investment trusts, the utilities and those stocks whose dividends yield at more than 3 percent. These pretty much describe the cohort that's been rocked over the last month or two.

In the meantime, there's no way to call it "good news" for the industrials, except for those that are connected in an overwhelming way to U.S. housing. These will benefit from the lower mortgage rates that we should get starting this week.

All in all, this is a "temper your enthusiasm" number. That's just what I'll be doing until I see something that tells me, definitively, that things have been getting better, not worse, since December. I am sorry to say that I don't have any indication that will be the case anytime soon.
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