How Stocks Rallied Despite Weak Jobs Report
How did the stock market manage to end the week at multi-year highs, especially as investors were disappointed by the government jobs report and other negative data released Friday?
“In what may be the strangest reaction to the lousy employment report and disappointing tech numbers that I can ever recall, we barely blinked,” noted Jim Cramer on CNBC’s “Mad Money.” “In fact, the averages spent a considerable amount of time in the green and closed there. How does that make any sense?”
(Read More: Stocks at Four-Year Highs, But What's Next?)
After all, the Labor Department reported nonfarm payrolls gained only 96,000 in August, missing expectations for an increase of 125,000. The unemployment rate declined to 8.1 percent from 8.3 percent, but the drop was largely attributed to people giving up looking for work.
Meanwhile, Intel — the world’s largest semiconductor maker — cut its third-quarter revenue forecast, citing softer demand due to the weak macroeconomic environment. At least seven brokerages lowered their price targets on the firm, causing its stock to close sharply lower.
Speaking of tech, the price war in tablet devices was amplified after Amazon.com unveiled a new e-reader called the Kindle Paperwhite and a larger version of the Kindle Fire, named the Kindle Fire HD. The influx of new tablet and smartphone devices will likely lower prices, but could shrink gross margins, too. (Watch: Did Amazon Just Introduce the iPad Killer?)
All things considered, Cramer thought stocks would close lower. However, expectations that the Federal Reserve may launch another round of quantitative easing helped limit losses. The Fed is scheduled to meet next week.
“We have to believe the Fed's got a present for us that might be better for the stock market than even a strong employment number would have been,” Cramer said. “The Fed is potent when it comes to stocks because it can create money and that quickly spills into more money to buy stocks.”
The markets are also helped by news that European Central Bank President Mario Draghi on Thursday said the central bank agreed on a new bond-buying program. In Cramer’s opinion, “what’s great for their banks is good for our banks.” (Read More: Nearly Half of Germans Don't Trust Draghi)
Also, China gave the green light for 60 infrastructure projects worth more than $150 billion, or nearly 2 percent of the nation's economy, to boost growth. Industrial stocks like United Technologies, Caterpillarand Cumminscould profit from such projects, Cramer said.
In the end, Cramer thinks investors have a lot to be optimistic about, even though the jobs report was nothing but disappointing.