Wouldn’t you know it, but the first three weeks of the year have brought more good fortune and more new highs as investors grow comfortable with the idea that the Federal Reserve is done raising interest rates and will soon be cutting them. I, however, see no evidence for why anything has to be cut despite what the all-knowing bond market yield curve and its accouterments like futures tied to the fed funds overnight bank lending rate are telling us. With Wednesday’s hot purchasing managers’ numbers that demonstrate the strength of both the service and manufacturing portions of the economy, it’s even more doubtful that we will get rate cuts soon. As the year begins, I am actually bullish about where things are with the U.S. economy because I think the Fed truly has a chance to crush inflation by staying tighter. That was my January Monthly Meeting message to Club members. After all, inflation is the most ruinous force against us, and we must be sure it does not come back. We don’t want rate cuts because the economy is weak. It isn’t, only portions of it are. We don’t want cuts because the stock market needs them. We’re at all-time highs for heaven’s sake. Additionally, rate cuts foment inflation, and that won’t help the stock market, either. We want measured and considered responses to real inputs like Friday’s personal consumption numbers, which contain the Fed’s favorite inflation gauge, as well as next month’s employment report and data on consumer and producer prices. Anything less than that and we will not be able to make as much money as we would like because inflation will rob it from us. We say take the Fed off the table as a reason to buy anything. Focus on companies and history and you will do fine. For example, as history does, this year has some really good things going for it. You tend to have some absurdly positive percentage gains when the market takes out old highs. When that happens, even if it took two years, the market has produced 12% returns. We also know presidential election years almost always produce good results. I feel lonely, however, in being still worried about inflation. But industrials General Electric and RTX carped about it Tuesday, and we know that housing, transportation and travel, and entertainment have not been rolled back. However, we do have something huge that will be a gigantic positive when it comes to wage inflation: there are a huge number of immigrants filling the jobs that, formerly, we did not have enough people to fill. It’s not talked about by the White House, and I have certainly tried to get them to do so. And, if aspire to be in the White House, you want these immigrants sent back to their home countries. I think immigration of all kinds can’t be stopped, and it is very positive when it comes to stopping wage inflation. Suffice it to say that any person with a heart feels horrible about what’s happening with immigration, but hearts are in short supply on Wall Street. With that preamble, let’s put it all together – 2024 has positive seasonal factors: (1) It has an economy that’s not going to tank but will produce some weakness; (2) it’s an election year; and (3) we don’t need rate cuts to make money. So, let’s stop the brainwashing and pick stocks and build portfolios based on a bottom-up approach to finding the right stocks rather than a top-down reliance on the Fed, as so many are. I think they will be disappointed and sell. We will be sanguine and buy. But … and this is a big but, this week we seemed to have reverted to the market that existed before the Fed’s positive pivot back in November. We are now realizing that after central bankers decided to stand pat and not raise rates, the stocks of many companies rallied. Not all of them should have run. Perhaps we are back to the period between the banking crisis of 2023 (after the fall of Silicon Valley Bank and everything that followed) and the end of the rate hikes, when the market leadership was narrow and only the best of tech worked higher. With poor performances by the likes of Club name Dupont , which issued an earnings warning Wednesday, as well as 3M , Texas Instruments and homebuilder DR Horton , it does seem reminiscent of the period where only a tight-knit group of tech stocks worked their way higher. So, why own anything but technology? After the first three weeks of the year, when Club name Nvidia is the year’s second-best performer and Netflix soars on good subscriber numbers, you have to admit, that it is a legitimate question. It’s almost as if when things go wrong there is a button on peoples’ keyboards that says “buy tech.” I do not know how this happened. These highly volatile instruments somehow became a new form of cash of sorts. But they are not cash. They are companies that are inherently high-risk at these levels. Take these four Club holdings, Amazon trades at 41.5 times forward earnings estimates, according to FactSet on Wednesday; Nvidia is at 28.7 times even as I expect the estimates are way too low; Salesforce sells for 28.9 times – and, of course, Apple chimes in at 28.8 times. Yet, they are working because each has a story to tell — and often, that story has to do with artificial intelligence. It’s because this is the year we will see how much money will be saved and made on AI. I think it will be substantial. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Jim Cramer on Squawk on the Street, June 30, 2022.
Virginia Sherwood | CNBC
Wouldn’t you know it, but the first three weeks of the year have brought more good fortune and more new highs as investors grow comfortable with the idea that the Federal Reserve is done raising interest rates and will soon be cutting them.
I, however, see no evidence for why anything has to be cut despite what the all-knowing bond market yield curve and its accouterments like futures tied to the fed funds overnight bank lending rate are telling us. With Wednesday’s hot purchasing managers’ numbers that demonstrate the strength of both the service and manufacturing portions of the economy, it’s even more doubtful that we will get rate cuts soon.
As the year begins, I am actually bullish about where things are with the U.S. economy because I think the Fed truly has a chance to crush inflation by staying tighter. That was my January Monthly Meeting message to Club members.
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