There is a widespread perception that Federal Reserve Chairman Jerome Powell does not care about corporate news. It’s a strict creature of broad government economic reports – the consumer price index, the producer price index, industrial production, retail sales and, of course, non-farm employment numbers. He also cares about what his federal colleagues say. But for the most part, the explosion of profits is a tree falling in the woods: he’s not there to hear it make a sound. If so, then market participants should sell whatever depends on the stability of the US economy here and ignore any company that needs to speed up. These growth stocks are simply victims of the moment. If you want to own it, you must be prepared to take losses before you see any gains. The few growth names we have in the Charitable Trust, including technology, are particularly concerning. Even if things settle down, it will mean losing profits and lowering the target price from levels when the world was a better place. But what if Powell wasn’t deaf. What if he noticed that Nucor (NUE), the world’s best steel maker and the largest in the United States, just issued the equivalent of an earnings warning and that its steel plates are getting into a lot of construction. Or, holy cow, that big FedEx (FDX) loser late Thursday was so weak that even if new CEO Raj Subramaniam is trying to reset expectations, we want to do our part not to trigger a global recession. Or perhaps Powell finds new housing and mortgage applications unfathomably weak. Or, more importantly, the top homebuilders — including Lennar (LEN) and KB Home (KBH), which report earnings on Wednesday after the Fed meeting — say things are definitely slowing. We know that retail, with the exception of Club Holdco Costco (COST), which also reported this week, has been miserable. We can continue to fold chemicals and papers this week. I, for example, think the guy takes it all, including all corporate reports of any real size. The question is: Does he want all this pain to happen? Does he want to lay off workers, creating a larger pool of workers instead of a larger workforce? Does the so-called service economy want to collapse with the commodity economy? More importantly, can it develop slowly or does it have to be done quickly? If so, many stocks have already taken a big hit. If it’s the latter, that means more rapid rate hikes until the CPI gets where it wants it and the “help needed” signals drop. In this case, no one has enough cash, and the technology is still very dangerous. I don’t want to guess. I accept a 75 basis point increase in the federal funds rate. I’ll let Powell tell us if we should be ready for another 75 in November, or if he’s willing to wait and see what kind of damage another surge will do. Keep in mind that it will be the third consecutive meeting of the 75. The tightening cycle began with 25 in March and 50 in May, followed by 75 in June and July. (There was no meeting in August.) A 75 basis point lift at next week’s September meeting would be a wise move, and Powell has prided himself on caution since the fall of 2018 when he was reckless in calling for firm steps. If he’s open to seeing how 75 other people play and people buy shares, he might find himself on the defensive. Remember that it needs people’s assets to go down – home and portfolio values - so those who think they can retire or go into business shouldn’t go back to work. That’s why I think my biggest concern is doing 75 years and we’re not done, because that means you can’t own the technology, even down here at current levels, and industrial companies can only be owned if they have a 4% safe dividend yield. As of Friday, the two-year Treasury’s rally told you we’re going to get “not done” from the Fed. If that bond continues to rise around 4% or breach it, we don’t even need Powell to tell us we’re not done raising rates yet. That’s why I’m going to San Francisco this week for Dreamforce, the Club’s annual Salesforce (CRM) event, I’m a little dashing. Many of the companies I will see are international. Their numbers will be crushed by the strong US dollar, the Covid lockdowns in China and whatever damage is done with Russia’s war against Ukraine. FedEx told you the US is starting to slow down. It will only continue. I want to look people head-on before we sell the technology because I don’t want to be in a situation where we have to buy it back at a higher price. But I won’t hesitate to sacrifice once-holy positions if it looks like Powell, the dollar, Covid, and Russian President Vladimir Putin will all shrink their number. The analyst community, by and large, still has very high price targets. Unless they go down, and they only seem to come down after companies tell them they need to, then we’re going to have a very different earnings season. Companies that were able to raise prices and names of health care will work. Banks can do just fine because defaults are not higher. But anything technical or related to big spending will take a big hit. If we reach oversold territory, there will be no hurry to sell off technology and industries until we get the bounce. But buying them at these levels does not seem like a good idea. Sell? better. (See here for a full list of stocks in Jim Cramer’s Charitable Trust.) As a CNBC Investing Club subscriber with Jim Cramer, you’ll 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 fund portfolio. If Jim talks about a stock on CNBC TV, he waits 72 hours after the trade alert is issued before executing the trade. 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Federal Reserve Chairman Jerome Powell speaks during a press conference after the Federal Open Market Committee meeting on January 29, 2020 in Washington, DC.
Samuel Corum | GT
There is a widespread perception that Federal Reserve Chairman Jerome Powell does not care about corporate news. It’s a strict creature of broad government economic reports – the consumer price index, the producer price index, industrial production, retail sales and, of course, non-farm employment numbers. He also cares about what his federal colleagues say. But for the most part, the explosion of profits is a tree falling in the woods: he’s not there to hear it make a sound.
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