Here’s my Monday playbook after the stock market’s Fed-driven rip higher
The conundrum of the stock market going down ahead of Jackson Hole confounded me. With a market that had been headed down every day, except for deep cyclicals and housing-related stocks, the setup seemed extreme. By the end of the week, the bet was one way: Federal Reserve Chairman Jerome Powell , perhaps because he wanted to go all-in on irony, would seek to frustrate President Donald Trump ‘s desire for three interest rate cuts and say that tariffs call for a continued wait-and-see attitude. Powell, addressing the central bank’s annual economic symposium in the mountains of Wyoming, did express concern about tariffs and inflation. However, the other half of the Fed’s dual mandate, jobs, just worried him more. That led to the Fed chief signaling rate cuts ahead, which touched off a powerful Friday market rally . In the lead-up, all of the different rotations tended to throw people off, but that’s par for the course played by the too-smart-for-school hedge funds with the typical bear-side response post “liberation day.” The reality was quite different. The data, which Powell has relied upon, even as the president found it a firing offense, clearly showed a dramatic deceleration in hiring, one that caught everyone by surprise. The lack of private sector hiring and the beginning of post-severance federal firings created a one-two punch that did switch the calculus. The mistake the negatively biased hedge funds made was to think that the tariffs would offset the layoffs. Foolish. The tariff laboratory that is Walmart showed that inflationary tariffs would be muted: some eaten by the manufacturer, some devoured by Walmart, and the rest served up to the consumer. The gradual nature of the hit to the consumer while occurring simultaneously with the slowdown in hiring made the Fed’s switch imperative. The only fly in the ointment was the inability of the hawks to create an empirical, granular analysis to back up their seat-of-the-pants judgments. That combustible set-up blew up in the faces of the bears who needed nothing short of a Powell decrying everything Trump, not realizing that Powell favors two wonderful factors: honesty and truth. Powell is pathologically judged by some as being late, even as the data has set his view free. I say his record is Pat Mahomes-like, and while Mahomes, to my delight, did throw a pick six to Cooper DeJean in the Chiefs-Eagles Super Bowl, his greatness has never been in doubt. Contrast that with the sainted former Fed Chairman Ben Bernanke, who raised rates endlessly despite ample evidence of a bout of stupidity worthy of Trump’s wrath. With the rip and the lack of a selloff even after the heights reached on a Friday afternoon, Monday’s importance can’t be underestimated, given the levels blown through by so many stocks. Big Tech For me, the big question is not the future of the Magnificent Seven megacaps because each has its own set of issues. Amazon involves its web services cloud hit and its slowdown in growth — as opposed to an actual slowdown. Alphabet ‘s got a “Mehta” gun to its head, Judge Amit Mehta in antitrust legal challenges, not Mark Zuckerberg’s Meta Platforms , which actually just threw Google a bunch of cloud business. Tesla has to make some trades to become more of a tech company. Microsoft needs to do nothing — saints don’t need to be beatified a second time. Apple ‘s stuck in Judge Mehta purgatory, too. Nvidia is still being questioned as the center of the bubble without ever being labeled as such. Too much money was lost fighting the last 70 points up. Too much underestimation of Jensen Huang and his relationship with the president. We’ll find out the real story Wednesday evening when Nvidia reports earnings . The non-monolithic nature of these comes down to the endless laziness of the media-analyst-complex that I have railed upon endlessly. So, any skein of thought that says it’s “Mag 7 versus the other 493” has to do with the usual lazy thinking that corrupts the equation. Housing, dealmaking To me, the undercurrent involves an outrageously bullish narrative — buy anything related to housing, mergers and acquisitions (M & A), and initial public offerings (IPOs), all three responding hard to a “don’t fight the Fed” analysis, thanks to the easily-ChatGPT’d dictum of the late Marty Zweig, credited with predicting the 1987 stock market crash. It’s both time-honored and ineluctable, because at this stage, the worst shall be first. That’s why, for example, Toll Brothers and Lowe’s resonated as strongly as they did. They were both relatively cheap versus their cohorts. They are now your bellwethers for housing. Goldman Sachs for M & A and IPOs. No need for any other ideas to watch, although I am drawn to Wells Fargo and Capital One , the latter because we await synergies and buybacks. Industrials For the industrials, you need to just look at underperformers such as DuPont and Honeywell , which keep coming to mind. But those are Club portfolio ugly ducklings on the precipice of third and fourth quarter split-ups. You don’t want to play against type at this moment. It’s Nucor ‘s time, and Whirlpool’s , the latter a hold-your-nose pick if there ever were one. There’s room for utilities, high-yielding oils, and retailers wedded to housing, such as the aforementioned Lowe’s and Club-owned Home Depot . Software Where are the pain points? Sorry, but it’s health care, excluding medical devices, and enterprise software, judging by the poor reception to stalwarts Workday and Intuit . These are two that are considered to be most vulnerable to the “artificial intelligence eats software” drumbeat that’s too loud to be proven wrong. Yes, I know that DataDog , Salesforce , ServiceNow (perhaps), and Adobe are poorly positioned to fend off a decline in seats among clients. But look for Palo Alto Networks to keep advancing: it was truly a bang-up quarter. Along with Nvidia, our other cybersecurity name, CrowdStrike , reports its quarter on Wednesday evening. Befitting the down-and-out semis, Analog Devices put up good numbers, causing a headlong rush into internet of things (IoT). I find the exercise annoying: stick with Broadcom and Nvidia. Catch-up stocks Catch-up plays include entertainment, how sweet it is that Disney returned within three points of where it started its descent, and cable, don’t overstay your welcome with Elon Musk ‘s Starlink on the horizon. Is there any wonder why good content that can’t be Musk’d when separated from a cable bundle company reflects negatively on the cable company’s valuation and causes a cliff-jump’s worth of points? Non- Targ et, non-Walmart retail. Would it have really mattered who Target picked CEO? Don’t forget Club name Costco , which has come down hard despite excellent results, and restaurants without much beef or coffee, talking our anti-book here with Texas Roadhouse and Starbucks struggling until the peak of beef and coffee. Anything steel, wood, or home, save perhaps Best Buy , given its inability to capitalize on its sales because of tariffs, works for me. Other loved stocks: Dick’s Sporting Goods , Nike , Williams-Sonoma , and the newly canonized Wayfair . Also, anything pets. Becton Dickinson , post-spin, is back. I really like it. Intel saga The monkey-wrench, as usual, is the president. The sideshow of Intel , for example, occupies so much mind space, as if Trump hasn’t done outrageous things in the past. The fine print on the deal is cartoonish. The deposed visionary Pat Gelsinger sought to do exactly what Intel will now do, with the money that was earmarked to be turned into a stake for the government. Many have decried this as socialist intervention or “industry selection.” That’s nonsense. Go read the balance sheet: new Intel CEO Lip-Bu Tan had run out of options. The share stake, as humongous as it is, beats bankruptcy, where Intel was headed. Disagree? Ain’t you people ever heard of cash flow? Can you imagine how solicitous of the president Lip-Bu was, and who can blame him? The sedition charge, made so lightly and maliciously unformed by a senator, and then held as gospel by Fox News, coupled with the canard about the Intel board disagreeing with the strategy put forward by them to Lip-Bu assured that with more help, the money to shore up the sheet would not be forthcoming. Having watched the stock gain made by Nvidia after the presidential blessing and having to go for a 15% “sales tax” on China chips, the president wasn’t going to be precluded from the real upside this time. Trump can both castigate former President Joe “Pinata” Biden and claim still one more saving of a few billion to the deficit if the gambit pans out. The appropriate analogue is the Chrysler save in the 1980s. As a fan of Lip-Bu, call it a win. Bottom line The president has eight months to be able to torture Powell and torment Fed heads for not resigning. He’s so good at it that only true masochists stay on. I judge Powell, a masochist par excellence. He’s got the whole Diogenes Greek philosopher thing going, which makes for its awkward moments. Why tarnish his rep now? The bake-off could be drawn out to pull the wings off of housefly Powell. I do hope there is a shred of decorum, but that has nothing to do with the market, which will be happy with three cuts now versus three cuts later. I presume the president will find some economic targets to bring up if only just to keep his relevance. I mean, when was the last time Mexico was called on the carpet? He needs bigger name prey than anyone else on the Fed; those under attack barely rise to the relevance of CNBC’s “Squawk Box” for heaven’s sakes. Now, unfortunately, starts the seasonally worst month of the year, made heavier by the gains in so many stocks that need to be locked in, and the sea change that comes from no hikes to fast hikes. September will be the first month that we will see across-the-board lifting of prices, but it will also be the first month of increased joblessness, with the latter already regarded as the preeminent Fed concern. So, what does get sold? At the risk of repeating myself: enterprise software, which seems in death rattle mode, autos and auto-related, too hard, pharma, but not Johnson & Johnson , because of its medical device business, but not McKesson or Cencora , either, worshipped by Congress and now ignored by the president. My last thought, here, beware of the endless gibberish about the hazards of rotations. They are harmless. Don’t worry about the Mag 7, they don’t have the profits that say a Netflix has worth preserving. Pay attention to the decline in the price of homes now that there is inventory, even if there are cancellations galore. And, by all means, recognize that we are on the homestretch of tariffs, and despite the president’s endless desire to re-trade won’t mean that much anymore. (Jim Cramer’s Charitable Trust is long AMZN, GOOGL, META, MSFT, AAPL, NVDA, GS, WFC, COF, HON, DD, HD, CRM, CRWD, DIS, COST, TXRH, SBUX, AVGO . See here for a full list of the stocks.) 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. 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