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My mission is simple: to help you make i. I will be your friend. only to entertain, but also to explain the context. Explain everything to you. Call me. 1-800-743-CNBC. We meet Jim Cramer. When you're trying to understand the market's next move, you need to look at the leaders, that is, what works day in and day out.
And that's exactly how you can figure out how to make money at this moment. And on a day when the Dow rose 172 points, the S&P was almost unchanged, and the Nasdaq fell 0.18%, you might be surprised to find that there is an index that is "burning" like fire. This is a strange index. He shows the way.
This is the Dow Jones Utilities Average, or "UTAs" as they are called on Wall Street. "Utah", which rose five points or half a percent today. Another strong session for this hot mix of 15 utility stocks that dates back to 1929. However, this pioneer began to separate from the others on April 16 of this year.
You know what? It seems to have been going up almost continuously since then. Utilities perform best when the economy slows. If this index had only been growing for a week or even two, I could have ignored it. But the fact that "Yutes" grow for so long—sorry. This is a red light signal for the economy that we are heading towards the brink of slowdown.
This is logical. This month we're finding those " brown sprouts" I'm talking about everywhere. " Brown shoots" is my term for companies with fading prospects. When you notice one of these key index changes that I'm talking about, you should immediately turn to the Wall Street Journal archives to determine the main reason for this new leadership.
Oh, that was n't hard to find. The headline from April 16 speaks for itself. "Powell lowers rate cut expectations" . And immediately below it: " Inflation and hiring have been more resilient this year than expected, weakening the case for early rate cuts." Nick Timiraos, gay, Fed "whisperer ", of course.
Powell is signaling a clear shift in the Fed's views, according to the magazine. It was the same legendary interview about "higher stakes for the longer term." The scenario of multiple rate cuts has not only been rejected, but rate cuts may have been canceled altogether. Because Powell now wants, quote: "a few more monthly inflation reports to restore confidence for rate cuts." Here it is .
We knew something was brewing ever since we got that high core inflation reading of 3.8% the week before the headline came out . This is a real blow to expectations. But that was Powell's interview . It was devastating. Devastating, because at that time we still had a bunch of people who believed that the Fed would treat us to a few rate cuts in 2024.
Hey, maybe even before we see any real weakness in the economy. These people lived in illusions. But they believed that the same people were expecting six rate cuts in 2024. Oh my God. When we entered the year. Now, for the last 3 weeks or so , these people no longer have any illusions. And that's when utilities went up.
Unfortunately, this is a rather unsatisfactory type of leadership. First, utilities are constantly forced to issue debt to maintain their operations, let alone expand them . Now they have to spend more than ever due to the overloading of power grids due to the creation of endless new data centers. If rates were to rise, their need to borrow would cause their stocks to fall.
This is clearly not happening. Second, think about this. You pay for electricity under any circumstances, right? This is the one bill you can't afford not to pay. The opposite of discretionary spending, which is why these stocks do so well during slowdowns, while consumer discretionary stocks do so poorly.
Remember that utilities are leaders, not what we call convergent indicators, which are leaders. They tell you what will happen. Rising stocks almost always mean the economy is weakening and interest rates are headed lower. Of course, on April 25th, remember, these guys were on April 16th, on April 25th, long-term rates peaked.
Not because of the Fed, but because many consumers seem to have exhausted their resources. And that was the beginning of the first sprouts right then and there. We began to see a slowdown that is now plaguing many. That's when we realized that Starbucks and McDonald's had raised their prices too much.
Travel, so popular since the end of COVID, has reached its peak, at least in America. That's when we learned that oil had stopped rising, especially now that Israel and Iran appear to be de-escalating the conflict. Oil prices have been gradually falling for several days now. So it makes sense that utilities set the tone here.
But what else can this group of leaders tell us? Do you know what we have to do first? We need to get out the old hedge fund playbook to see what works in these conditions and recognize that this market has new dangers. Dangers that can force us to change our usual course. First, as we know, pharmaceutical stocks go hand in hand with utilities, but many pharmaceutical companies are not doing very well.
So we have to be a little more selective than usual. For example, typically at this stage of the business cycle I recommend buying Bristol Myers, a typical slowdown stock. But right now, Bristol Myers doesn't have enough developments in its portfolio. So the pharmaceutical company with the best developments is Merck, which has an amazing range of anti-cancer, immunological and cardiac drugs.
Hey, look, or you could say—don't be too clever. How about Pfizer with a yield of almost 6% and a slew of new drugs, or just pick something that's really working this year—Eli Lilly, thanks to their miracle weight loss drug. Or do what we did today with the charity fund. I mean, follow us by joining the CNBC Investing Club.
We bought some Abbott Labs, a dividend stock that's been getting hammered right now, down from 121 to 105 since March, despite a great report three weeks ago, because a competitor in the infant formula business, which is one of their lines of business, lost a high-profile lawsuit over the death of an infant.
This is a rare case, but now Abbott shareholders are scared, as if it's J&J or something like that, where they're mired in lawsuits. You used to be able to buy almost any food company stock during this period, but the problem with these GLP-1 weight loss drugs has thrown the sector into disarray. We know that these medications reduce food cravings, but we can't be sure exactly what they affect.
Neither Coca-Cola nor PepsiCo experienced any deterioration. No, they told me so , and it looks like the long-awaited choice is brewing, I think, between the two of them in the soda line. PepsiCo, which has Gatorade, which could potentially be affected by GLP-1, has small packages that sell very well.
In addition to the traditional actions to slow down, we noticed something different today. If you have a topic that can outpace the utility leadership, money will flock there. So, we know one. These are data centers. These servers are being built everywhere, we see it almost every day. Last time we heard from Arista Networks, one of my favorite companies, one of the best manufacturers of networking equipment that connects Nvidia chips to places where data is needed.
Arista's business is constantly growing, and this has also pushed Broadcom, a competitor and also an object of our trust. Meta made a leap. Apple and Amazon remained in place. Apple is doing well too. This group can be restless and unruly. ARM released a report tonight and the semiconductor company gave a weaker- than-expected outlook, so the stock fell sharply, but I'm not sure if it will last long.
Oddly enough , there is another group that is balancing on a knife edge. These are banks. Theoretically, they are fine if rates stay high for longer, but they also have fewer credit problems if rates go down. However, finances are a fickle thing, so be careful. As you know from the examples of Upstart and Affirm, two fintech companies whose shares were destroyed today.
Later on the show I will have a representative from Affirm. Then JP Morgan added 2%. I like this pleasant movement. When in doubt, I advise sticking to what worked in the past when profitability was different, not necessarily what works right now. But the main takeaway: at the end of the day, utilities never lie.
When they rise so steadily, these stocks scream that Jay Powell may have set this slow process in motion by simply warning us that he's not going to stop it as long as inflation remains high. Still, Powell said it bluntly: rate cuts are being delayed, forcing everyone who was waiting for better times to give up.
And when you raise utility stocks, you definitely give up. How about switching to Alex from Pennsylvania? Alex. Hi, Jim, how are you? I just want to say that I love your show, and I'm from your area, from Bala-Synwyd, Pennsylvania. Bala-Synvid, some ignorant people call it "Synvid ", and we are forced to correct them.
You know , it's a Welsh name. People don't know this either , but it's all in my head. How can I help? Hello, what do you think about Intel? I mean , Biden is here... I'm going to tell you something. Stop, stop, because you are a Philadelphian, and I am familiar with such people. Grandma Mary, a true North Side Philadelphian, always said one thing.
Grandma Mary used to say, "If you can't say anything nice about something, don't say anything at all ." Grandma Mary says, "I won't talk about Intel ." Let's move on to Rebecca in New York. Rebecca. Congratulations, Mr. Kramer. I want to sincerely thank you for talking to my grandson Arianna yesterday.
No, that guy has common sense . I like it. He is really smart. I love...I think it's from me because we watch your show together every night and I try to explain everything to him. It had to be passed down from someone. Oh, you are so cute. Good. This is up to me. I want to ask you about American Eagle.
They were working well, but now I see that everything is going wrong. What do you think they should do? What? They had popular products. That's the problem, grandma . When you're dealing with popular things, you have to get in on time and get out on time. This is too difficult for me and for you. Let's choose something more traditional.
Let's choose something like Walmart or my favorite and yours— definitely Costco. That's what we'll stop at , and the child will stay in the game. After all, young people never lie, and when they rally like they are now, the house is on fire, we have to prepare for a slowdown. There is a lot of talk about a slowdown in consumer activity .
So are they avoiding Dutch Bros, or is this going against the trend? I'm going to talk to their CEO. The firm reported very strong quarters, so why are investors selling off shares of this buy- now, pay-later service? Maybe they are wrong. And if you're waiting for the Fed to lower rates, it might be worth adding at least one REIT to your portfolio.
I am talking to Federal Realty, who own the shopping centers, to find out the latest news in this area. questions? Write to Kramer. #. Did you miss something? Go to madmoney.cnbc.com .
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