In the old days, we would go this low in tech and it would trigger a giant rally. Maybe the catalyst was a takeover. Maybe it was the recognition that these stocks had all become too cheap. Or we would hear that some gigantic technology fund had blown up, the selling was over, and now it was time to swoop in and buy. This time we have no catalyst. On Friday, the tech-heavy Nasdaq Composite fell nearly 4% in a broad-based sell-off on Wall Street. The stocks, as we say, want to go down. The tech names have somehow become the most sensitive to the dollar and to the alleged slowdown in the internet. There’s also the problem of too many software names. Venture capital funds have become lovers of anything related to software and can easily jam these stocks down the throats of greedy brokers. Consequently, we just don’t know what to do with them all. When you have an Adobe (ADBE) and a Service Now (NOW) deliver perfectly good quarterly numbers and the stocks still get hammered, that’s soul searching time. There are tons of companies like them and they are all doing well enough not to fall precipitously — unless we have another day like Friday. All is not lost First, it does seem to matter if you have a legitimate beat and raise for a company with a stock that has not done as well as it would have liked in the last year. Such is the case of Workday (WDAY), which said that it had seen an uptick in business and some pretty good profits. The fact that it beat and raised everything certainly helped. But perhaps more important: the price target had already been lowered and that gave it a real lift. I just wish there were more of these companies that were forlorn coming in. But then you have other stocks — like Club holdings Nvidia (NVDA), Microsoft (MSFT) and Marvell Technology (MRVL) — that you are tempted to say, “You know? I am done with them. I don’t care if they do what they say, they have end markets that are in decline and I want out of them before it is obvious to everyone.” There is one problem: That’s not true. Demand is there, but there aren’t enough buyers who care anymore. Second, the market simply has too many software companies and too many semiconductor companies. Yet we fear that any consolidation will run afoul of the regulators. That fear is well-founded. We are not going to lose these companies. This makes us grateful that the IPO market, which has so many of these kinds of companies in the chute, is closed except to junk Chinese companies. And finally, the tech companies have no dividend protection to speak of. Couple that with incessantly high multiples and the group is untouchable. When you try to stick your neck out, you get hurt so badly that any recollection of the bouncebacks of yore seem fanciful or too long ago to remember. The case for holding on Then why not leave these tech stocks? After Friday’s pasting and what will happen tomorrow, I think the retest will have, somehow, miraculously succeeded. That’s what we’ve been going through all along. The slower-growth stocks like Colgate-Palmolive (CL) and JM Smucker (SJM) — very good both — will be avoided soon. Not yet. It has to dawn on people that they are underinvested in tech and interest rates are done going up. That is going to happen. Just not yet. In fact, I think that we are going to get some data in the next few weeks that will make it all work. Federal Reserve Chairman Jerome Powell’s speech on Friday in Jackson Hole was meant to obviate the need for another rate hike of 75 basis points. Powell’s shot across the bow — he said the central bank won’t back off its battle against inflation — was the equivalent of giving you a 25 basis-point hike now and then another 50 in September. While we lack the catalysts to buy tech stocks right now, we will not need them the closer the Fed gets to stabilizing things. Valuations will have come down enough that these stocks will be ready to rally. The kind of rhetoric we got Friday is not something you hear at the beginning of a tightening cycle; you hear it at the beginning of the end of one. That’s why I will not abandon Salesforce (CRM), Marvell (MRVL), Advanced Micro Devices (AMD), Nvdia and Qualcomm (QCOM). They are close to the end of their decline. Meta Platforms (META) will start monetizing WhatsApp as WeChat has done in China. META has come down too much. Quacomm will be more visible as a play on electric vehicles. Nvidia will weather its transition into new graphics cards. AMD will continue to take share from Intel (INTC). Marvell will get the parts it needs to meet demand. Salesforce will get the sales it needs from its annual Dreamforce event. These companies have real demand. I am not bailing on those who are making money, even as I am uniformly against the money losers. I mentioned all of these because I am licking a lot of wounds from this last session. I knew that Nvidia and Salesforce had more downside, but I took no action, thinking that we had sold some of the stocks not that much higher than when the downturn started. That’s no longer the case. They are now way lower than they were then. After this cascade, I am a buyer not a seller. The expectations have been wrenched out of these and a host of others. Sure, we need more downgrades and those will occur. They always do at the bottom. They are worth waiting for. We just haven’t seen them yet to pull the trigger. Nobody likes tech — and that’s good These tech stocks are the most hated I have ever seen, other than in 2001 when (again) there were too many techs and too many that were focused on the internet and the spigot closed. Here we are again. There have been no new technologies created in the IPO market in ages. That’s wildly positive. We have gotten religious when a Salesforce announces a $10 billion buyback. They don’t need to do that. But it does help formulate a discussion about how cheap tech is — although it’s all relative as cheapness is never the province of tech. But it’s near the cheapest I can recall. How about the rest of the market? The strong dollar has cracked the industrials. It has hurt the drugs. Fears of imminent defaults have crunched the bank stocks even as their balance sheets are the best they have been. Retail is a disaster with high labor costs and the wrong products. Not a lot to choose from. Yet if you believe the Fed was tough enough on Friday, then you want to buy into this next leg down and the great retest of levels we thought were behind us. I think it holds. I am aware that this is a very contrary view. I am caveating that September can be a very cruel month, but not so cruel that you can’t buy things when the S & P 500 Short Range Oscillator gets more negative. It is at minus 2% and I would like to see double that so we have short-selling floor underneath. So I am not bullish. I am just less bearish than many others. Lots of cash — never enough — and lots of patience is needed to rebuild the portion of the techs that we sold while looking at the great bull markets in other sectors (like agriculture) that I talked about 1,000 Dow points ago. (Jim Cramer’s Charitable Trust is long AMD, CRM, MRVL, META, MSFT, NVDA, QCOM. 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. 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Jim Cramer standing in front of the NYSE, June 30, 2022.
Virginia Sherwood | CNBC
In the old days, we would go this low in tech and it would trigger a giant rally. Maybe the catalyst was a takeover. Maybe it was the recognition that these stocks had all become too cheap. Or we would hear that some gigantic technology fund had blown up, the selling was over, and now it was time to swoop in and buy.
This time we have no catalyst. On Friday, the tech-heavy Nasdaq Composite fell nearly 4% in a broad-based sell-off on Wall Street. The stocks, as we say, want to go down. The tech names have somehow become the most sensitive to the dollar and to the alleged slowdown in the internet.
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