Lots of companies were clocked in the last week. We found weaknesses in a host of industries ranging from media and gambling to cloud computing and software sales. The pain in the tech sector seems to know no bounds, as we mark a year ago this month since the Nasdaq last closed at an all-time high. (To be clear, I’m not referring to Apple’s (AAPL) Sunday night post on iPhone 14 Pro and Pro Max issues due to a showdown in production due to Covid restrictions in China. This is because these are not related to demand. ) At the same time, we have seen continued and remarkable growth in industrials. Despite a rocky start to November, the Dow Jones Industrial Average posted a nearly 14% gain in October, its best month since 1976. There are many ways to gauge industrial strength. Some like to use the rails, and they showed very good numbers. Some like to use airlines, and they are as strong as I remember them. But for me, I like to soak up the wisdom of Nick Akins, the outgoing CEO of American Electric Power, which happens to be the largest electric transmission company in the United States. When I interviewed him last week on “Mad Money”, I was shocked to learn that his business is accelerating with great strength in chemicals and papers, primary metals – and, most importantly, in the extraction of oil and natural gas. It’s a typical snapshot of the US economy in 2022, an economy that can’t seem to be contained by Federal Reserve Chairman Jerome Powell no matter what – even if there’s a massive slaughter of actions once loved. The dichotomy is everywhere. We’re getting tremendous manufacturing growth as well as a great increase in travel and leisure and everything that goes with it. But we have hiring freezes and layoffs galore in tech, especially anything related to software or semiconductors. When you merge industrials with the force of travel – and the spending that comes with it – you get higher prices for on-the-go consumers and bigger spending once they get where they’re going. I do not see the slightest glimmer of hope that these expenditures will decrease. Mastercard (MA), Visa (VA) and American Express (AXP) are all confirming that Americans are getting out and traveling like rarely before. I think it has to do, again, with the behavior of the post-Covid pandemic. Every once in a while, you’ll hear about some sort of travel slowdown. I know there was an attempt to pin Airbnb (ABNB) CEO Brian Chesky on slower spending on grander homes in the fourth quarter. I can tell you from my own research after speaking with him on “Mad Money” that nothing could be further from the truth: this is something Marriott (MAR) and Expedia (EXPE) have confirmed. It’s no wonder we continue to see strength in travel, recreation and entertainment hiring. However, there’s really nothing visible to slow this behemoth down. Now, I’m not dismissing the housing downturn. It’s so palpable that the folks at Zillow (Z) on their call made sure you knew it was a terrible time to buy a home given the incredible Fed interest rate hikes that we have seen. I know Powell mentioned the “lag” in the legendary 2 p.m. ET statement after the central bank’s November meeting last week — ahead of his portfolio stuffing press conference. But there is no delay in housing. We also heard some discouraging talk about automobiles from Ernie Garcia, CEO of Carvana (CVNA). He sees tough times ahead for used cars. His negative comments sent his stock plummeting nearly 39% on Friday, as many feared he lacked the capital to maintain the pace of sales he envisioned and equity – and even debt markets could be closed to his business. But you don’t see the kind of weakness that’s bringing down the major players in the industry. The Carvana and Zillow calls don’t resonate because auto and real estate companies have already seen their stocks crushed. Which brings me back to the techies who have heard CEOs say the terms “macroeconomic uncertainty” and “facing headwinds” almost in unison over and over on their conference calls. Unlike housing and auto stocks, these took it on the chin every time. Some of the declines we saw were incredibly overblown, including Atlassian (TEAM), down almost 29% on Friday, and Cloudflare (NET), down 18%. Both are great companies. But we’re just not used to seeing companies of this quality experiencing downturns as they help businesses digitize, automate, develop new software – every secular growth area we can think of. Every buzzword we’re used to. I heard the same from Appian (APPN), another company that offers enterprise software solutions, and another stock that fell more than 18% on Friday. The sky knows enough about those created during boom times – and its stock was crushed when it slashed its forecast. I found myself thinking if anyone thought they would lift it? Maybe so, because owners of these stocks and their ilk simply didn’t see the downturn coming until last week. They have been dumping these stocks at a record pace. But the sale wasn’t limited to companies that aren’t used to stumbling. Stock of Twilio (TWLO), which makes excellent customer management and loyalty software, soared again and fell sharply once again, down nearly 35% on Friday. Of course, these stocks were such popular stocks that the creators of exchange-traded funds (ETFs) assembled basket after basket so that they were all linked. Even the best, like ServiceNow (NOW), with a big upside surprise and a 13% increase on Oct. 27, couldn’t resist the onslaught and have returned all that gain and then some since then. Compare that to, say, anything not digitized in autos or housing and you’ll hardly see a decline or even outright progression because those stocks are derisked, meaning only brain dead or the endless hopes of a quick-end cycle are still within them. When I examine software failures to see what they mean about headwinds and their impact on business, I come up with data that remains worrisome for anything tech. The first is what we call a “top of the funnel” problem, which means that attempts to attract customers are slowing down. Acquiring new customers simply takes longer or takes longer is the password of the moment. Existing customers are retained at the usual rate, so retention is not the issue. But getting them to do more seems to be getting harder and harder. The so-called terrain and expansion just doesn’t happen. Fewer landings and there’s not much expansion, there are hampered customers there. Fintechs don’t spend; reasonable given the amount they have already spent. Crypto firms are on the ropes and their problems extend to the scruffy media sector. But I think there just aren’t enough funded or publicized companies that need the software. At the same time, those once-thriving tech companies that saw an ever-expanding funnel somehow seemed to see nothing coming. Most, like Alphabet (GOOGL), were still hiring in the spring and summer. Many have the largest number of employees they have ever had. Their reaction is mainly to freeze hiring, although some are starting to lay off. The latter, however, is very rare. This will not be the case next term, believe me. To me, it all boils down to sticking with stocks of companies that anticipate weakness, which are the soft consumer goods companies that will benefit hugely when their gross costs fall next year and the dollar struggles after its run incredible, or companies that are actually leveraged by a consumer who stays liquid and likes to spend on small luxuries, like cosmetics, Estee Lauder (EL) or iced lattes, like Starbucks (SBUX). Now I’ve focused on the semis several times, and you know they need more powerful PCs, servers, games, and cell phones. If you see which ones are stronger, let me know. I do not know. But this software sale is very reminiscent of the 2001 debacle. The only difference: many of these companies can be profitable. They just don’t want to be. It’s changing now, but not fast enough to handle the moment we’re struggling with and a group of stocks that just haven’t bottomed out yet. How is the bottom affected? Like always. Mergers and bankruptcies with only those with money in the banks and the strongest customers arriving where the Fed is done tightening and the customers come back to life. (Jim Cramer’s Charitable Trust is long AAPL, GOOGL, EL, and SBUX. See here for a full list of stocks.) As a CNBC Investing Club subscriber with Jim Cramer, you’ll receive a trade alert before Jim makes a transaction. . Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim talked about a stock on CNBC TV, he waits 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, AS WELL AS OUR DISCLAIMER. NO OBLIGATION OR FIDUCIARY DUTY EXISTS, OR IS CREATED BY YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR PROFITS ARE GUARANTEED.
Jim Cramer at the NYSE, June 30, 2022.
Virginia Sherwood | CNBC
Lots of companies were clocked in the last week. We found weaknesses in a host of industries ranging from media and gambling to cloud computing and software sales. The pain in the tech sector seems to know no bounds, as we mark a year ago this month since the Nasdaq last close at a record high. (To be clear, I’m not talking about the Apple (AAPL) Sunday evening statement on iPhone 14 Pro and Pro Max issues due to a showdown in production due to Covid restrictions in China. This is because these are related to supply and not demand.)
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