Jim Cramer: Roll With This Sea Change

Tickers in this article: AN BBY F GM GME

This article originally appeared on Jan. 27, 2014, on RealMoney.com. To read more content like this plus see inside Jim Cramer's multimillion-dollar portfolio for FREE... Click Here NOW.

You get deep in the weeds of this market, and you can really figure out what's going wrong and why.

There's a profound set of cross-currents playing havoc with stocks and, more important, a huge wave of confusion and pessimism is engulfing all of us right now.

Let's start with the real, proximate cause of this difficult period: the last employment number. As part of Get Rich Carefully, I spent a huge amount of time analyzing the precipitants of sea changes in the market. It's amazing how very few there are. We tend to think that individual stocks can control all, and they can on an hourly basis, but not much more profoundly than that. The market has a terrible memory.

We tend to think that Federal Reserve pronouncements can play a huge role, but even those diminish as they are met with other Fed data points and speeches. Also, the Fed is so well-covered these days that everything's pretty transparent and discounted.

We know that the federal government's infighting can truly trigger difficulties for the market because it saps confidence.

But the only real predictor -- the only real forward-looking, non-coincidental piece of data -- is the nonfarm payroll report, and the stench of that last number hangs over our markets for many, many weeks after. In fact, the nonfarm payroll number has set the tone ever since the beginning of the Great Recession.

It's amazingly controlling in its implications.

As I have studied the number, the reason it's so important has become glaring. It's because this number is so outsized that it actually impacts more than just Wall Streeters and investors. It impacts consumers and businesspeople, particularly small-businesspeople. A very weak number, like the one we had last, signals the possibility of a recession, and that's what's been in the air ever since that number came out.

That brings us to premise No. 1. The employment number has called into question the durability of the nascent recovery. It has called into question the strength of all of the following sectors:

  • Autos. Autos had been the bedrock of this recovery, and then we heard AutoNation  CEO Michael Jackson say that inventories are backed up. That made us suddenly wary of a group of stocks that had been definitive market leaders. Take a look at GM  and Ford  after that announcement. Horrendous. Parts makers aren't immune, either.
  • Home construction. I liked the tenor of the home-related stocks coming into the year. But they have ceased to be strong because of a profound belief that the consumer is spent and not optimistic about the future. (I have not been a fan of the homebuilders for some time, yet for some reason I am constantly being criticized on Twitter as being their champion. But they have acted well with the decline in U.S. Treasury interest rates.)
  • Commercial construction. We are hearing mixed tidings here: Some banks and companies saying things are getting better, but the Architectural Billing Index has turned down. This is the most important group for the next leg up in the economy, and it suddenly seems tepid.

Now, let's deal with the most glaring breakdown after the employment number: retail. First, now that we're surveying the landscape after the holidays, we're finding that only Costco , Macy's  and Starbucks  delivered consistent 5%-plus U.S. same-store sales.

Most retailers reported horrendous comps. This is a crucial group coming off a crucial quarter, the only one that really matters, and it has been a tremendous tone-setter prey to confirming the employment weakness.

We've got some crosscurrents here that are playing real havoc with the group and with the faithful behind it.

First, going into the holiday, there was a presumption that the only things really selling well were hard goods. We came to accept a belief that it wasn't that the consumer was on the ropes. It was that he or she was buying hardware, and not software. But the shocking numbers from Gamestop  and Best Buy  ended that presumption.

Once we saw those figures, we quickly switched theses and causes to:

  • A shortened period between Thanksgiving and New Year's
  • Miserable weather throughout the country
  • Woes in the wake of the government shutdown

But then we got the huge comeuppance from Howard Schultz, CEO of Starbucks, that these cyclical and one-off concerns were not behind the weakness. We are having a seismic, secular sea change that has to do with a permanent decline of mall traffic and a migration to online shopping. Starbucks can't be Amazon'd , but it now looks like everyone else can be, with the exception of Macy's and Costco.