Can it avoid inflation? Is there more demand than supply? Does it make sense at this point in the cycle? Does it respond to current events? Can it be linked to travel? Can it be placed in a data center? These are some of the few themes that are yielding profits right now, in what is shaping up to be a wild earnings season. Let’s leave the macro out of the way before I get into what works and what doesn’t. We have two events with big bang potential and visions of outcomes that will take on a political flavor as we get closer to the elections. Federal Reserve Chairman Jerome Powell met with the press after the March Federal Open Market Committee (FOMC) meeting, which was quite charged. That’s because, while I greatly admire Powell and his Fed, I continue to think he decided to subtly admit he was wrong when he thought inflation would eventually fall if he stayed the course. I don’t look at aggregated data, I break it down company by company using my “Mad Money” interviews to get a better understanding of the quarter’s cadence, and then extrapolate that insight to countless conference calls to see if I’m wrong -on track with anecdotal or on track with an empirically infused view. I think when Powell thought he had failed, he didn’t realize that his tough talk was moving the bond market yield curve and the curve was moving the economy. Yes, a 60 basis point move may have been the resistance Powell needed to start the next leg down. If enough people agree with me about a renewed acceleration of business in January and a step up even from there in February, followed by a slowdown, perhaps even a severe slowdown in March, then higher interest rates for longer talk could be a cause for concern especially if unemployment hovers at plus 4% on Friday, when the government’s employment report for April is released. A Fed that tries to engineer a soft landing — the ridiculous metaphor that has been with us for centuries, ridiculous because Powell isn’t even trying to land anything, not even an airplane — will be caught on the wrong side of the jawbone. That uppercut followed by a possible left-wing push of strong job growth and/or higher wages would cause traders to go all in on the stagflation story – and sell or sideline them with juicy 5% certificates of deposit, or CDs. We may still have to asterisk the employment figure because of California’s minimum wage increase to $20 per hour, something substantial enough, given that California is a fifth of the country, that my thesis about the slowdown will be swamped by events that are beyond our control. Alternatively, a cautious Fed waiting for more data could give the green light to buy as it keeps hopes of a rate cut alive regardless of Friday’s figure – and watch for it to be even slightly weak, perhaps because the underground economics of mass immigration could even affect wages. because it reinforces the stickiest of the sticky: shelter. I think the variables favor ‘Pangloss’, a bit of Voltaire that was in desperate need of a Google search last week, or perhaps one by Meta Platforms’ new AI, which is pretty good by the way. Pangloss, the eternal optimism, is fiction and not fact, but we do have a way to get back on the slow path of rate cuts. If that’s the case, what will people buy? Let me give you some themes that give a sense of the madness of the various winners. Data centers If the smell of a data center or something similar can be heard, the price will go up. That’s what happened with Vertiv, where, after a moment of hesitation, it burst higher. That’s what happened less superficially, with the name Arm and Club Broadcom. I expect we could see a Vertiv-like falter and rebound at Eaton this week, when the club name that specializes in electrical components and energy management systems reports profits. Google parent Alphabet and Microsoft are well on their way with their expansion – Meta not so much, despite the huge purchases of Nvidia chips. We all learned that during last week’s earnings flood. But it will happen. That’s why Meta stock is buying slightly lower, as stocks tend to relive these types of declines. It’s also why Nvidia shares rose 15% last week, as tech companies continued to buy up all the Nvidia chips they could get their hands on. Travel American Express led the financial side of travel. Raytheon and GE Aerospace led the hardware and service side. That’s why the money went to those two for the insatiable demand for planes to go to. Royal Caribbean showed that after a period of, well, pop, there can still be pop. I think Booking will give you a winner on May 2nd. Keep an eye on AAR for a pullback as the sweet spot is aircraft maintenance, which requires all aircraft so there is plenty of lead time. AAR has posted gains in eight of the past nine sessions. I was disappointed with the club name Honeywell last week when the wreck and jetsam got in the way of aerospace. I think we will have to reassess the situation following the departure of former CEO Darius Adamczyk from the board in early June. The clock is ticking as new CEO Vimal Kapur takes ownership of the current regime. Delta and United airlines work for transactions. I don’t know what to say about Southwest Airlines, so I won’t say anything. Housing Housing is the counterintuitive thing. But these companies are showing restraint. If you build half the houses you did when you had half as many people in this country, you have an artificial deficit that produces fantastic gross margins and orders. I think Toll Brothers, which was a great buyback, is working well. But so do Pulte and Lennar. They all have similar playbooks. Oddly enough, you can’t recommend Lowe’s or Home Depot of these, but they are used for turnover and renovation and we just don’t have enough of them. For this reason, I’m concerned about Club stock Stanley Black & Decker, but the dividend will keep it going for now. Only Azek seemed to resonate. Banks The banks are coming to terms with an age-old move and exercising their right to buy as much as they want. There are dozens of biotech and enterprise software companies in the chute. That’s what makes us so nice, the club name Morgan Stanley. JPMorgan deserves a comeback. I’ve never seen Wells Fargo CEO Charlie Scharf as excited as he is this quarter: There’s no denying that huge payout. Wells Fargo is abandoning its interest rate protection, but has what it takes to stay both longer and higher due to good savings returns or a Fed rate cut, which bank investors love. Consumer Goods Surprisingly, consumer goods, club name Procter & Gamble and then Colgate, are looking fantastic – no doubt due to commodity costs falling, but no price reductions for consumers. This piece of outrage, based on trusted brands, is working. Chipotle is the other company that has been able to accomplish this feat by raising prices in California to cover costs and not seeing a downturn. I’m concerned about McDonald’s, which reports earnings this week, because it has a franchise model and I bet they would object to that. I’m more concerned about it because it has only increased because there has been no news, which can lead people to believe that the worst is over. I don’t know the optimism. In short Apart from all that, I can’t be enthusiastic about any other sector. Drugs, it’s all Merck – boy, was that a terrible neighborhood for Bristol-Myers. Follows in the footsteps of the mediocre Johnson & Johnson. I spotted a PepsiCo white flag on U.S. carbonated drinks, which could spell a breakout for Coca-Cola, which reports earnings this week. Energy, you have to go with the refiners, not the majors – and if you insist on the minors, look at the club name Coterra Energy and Highwire at Diamondback, as well as a corner at Devon. Stay away from the drillers after the SLB disappointment and European oil companies seem exhausted. I wish I had more, but this market doesn’t give you more. You can take it as it comes. But remember: if you stray from the winners, for example in technology, and settle for losers, remember that they were all raised by Alphabet and yet Alphabet is only good for Alphabet and that has played out. I hope you’ll watch Nvidia founder and CEO Jensen Huang on “60 Minutes” Sunday night (or watch the answer on-demand). The man I call a modern-day “da Vinci” should show you why he deserves the premium on his stock, even if in retrospect it turns out to be a discount. I hope you see how kind and gentle he is. And yes, he uses those terms too. (See here for a complete 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 charity’s portfolio. If Jim has talked about a stock on CNBC TV, he will wait 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, ALONG WITH OUR DISCLAIMER. No fiduciary obligation or duty exists nor is it created by your receipt of any information provided in connection with the Investment Club. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Jim Cramer on CNBC’s halftime report.
Scott Mlyn | CNBC
Can it avoid inflation? Is there more demand than supply? Does it make sense at this point in the cycle? Does it respond to current events? Can it be linked to travel? Can it be placed in a data center? These are some of the few themes that are yielding profits right now, in what is shaping up to be a wild earnings season.
Let’s leave the macro out of the way before I get into what works and what doesn’t. We have two events with big bang potential and visions of outcomes that will take on a political twist as we get closer to the elections.