NEW YORK (Real Money) -- Take a look at what worked in the fourth quarter. If you do, you can see why I write -- right up top in Get Rich Carefully -- that the only economic metric worth following is the payroll employment number that comes out on the first Friday of every month.
First, let me say: We are bombarded with numbers. We have all sorts of them -- purchasing managers reports; retail sales; new and used home sales; durable goods; consumer confidence; inflation, both producer and consumer; Federal Reserve minutes; and the index of home pricing.
I don't want to say, "Throw these away, they mean nothing." They can impact the pricing in U.S. Treasury bonds, at least ephemerally. They must be reported because they are, indeed, news. But for the most part they have no lasting impact, almost none whatsoever, at least when compared with that payroll report. This was the number that predicted the downturn, and it was the number that led to a wholesale shift in stock focus -- the big rotation -- in the fourth quarter. This was vital when it came to picking the right stocks that outperformed, and outperformed substantially, in the latter half of the year.
I know that might seem unfair to those who make a big deal of every number, but let's look at what happened in the fourth quarter.First, as soon as the first good number showed up, investors started dumping everything that was soft goods or recession-related, including General Mills (GIS), Kellogg (K), Eli Lilly (LLY), Pfizer (PFE) and Johnson & Johnson (JNJ). It was almost as if these stocks caught the plague. If you had stayed with them or hadn't cut them back because you had wanted to be diversified -- something I wouldn't have blamed you one bit for -- your portfolio would have stopped increasing in value. It would have just hit a wall. It is important to recognize that the same idea generally applied to the drugmakers. Unless there was a new breakthrough drug or approval -- as was the case with Gilead (GILD) and its hepatitis C drug, newly sanctioned by the Food and Drug Administration -- the same underperformance struck hard there, too after the big employment number. It just stopped this once-red-hot group in its tracks.