Many companies were booked last week. We saw weakness in a host of industries, from media to gaming to cloud computing to software sales. The pain in the tech sector seems boundless as this month marks a year since the Nasdaq last closed at an all-time high. (To be clear, I’m not talking about Apple’s (AAPL) Sunday night release on the iPhone 14 Pro and Pro Max issues due to a production standoff due to Covid restrictions in China. That’s due to that are related to supply and not to demand.) At the same time, we saw continued and remarkable growth among 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 measure industrial strength. Some like to use the lanes and they showed very strong numbers. Some like to use airlines, and they are as strong as I remember them. But I like to dive into the wisdom of Nick Akins, the outgoing CEO of American Electric Power, which happens to be the largest power transmission company in the United States. When I interviewed him last week on “Mad Money,” I was surprised to learn that his businesses are accelerating with great force in chemicals and paper, primary metals, and most importantly, oil and natural gas extraction. . That’s a typical snapshot of the US economy in 2022, an economy that Federal Reserve Chairman Jerome Powell can’t seem to control, come what may, even as there is a massive carnage of once-loved stocks. The dichotomy is everywhere. We are experiencing tremendous growth in manufacturing, as well as tremendous increases in travel and leisure and everything that goes with it. But we have hiring freezes and layoffs galore in technology, particularly anything related to software or semiconductors. When you merge the industry with the strength of travel, and the expense that comes with it, you get higher prices for consumers on the go and higher spending once they get where they’re going. I don’t see a ray of hope that this spending is going down. Mastercard (MA), Visa (VA) and American Express (AXP) confirm that Americans are leaving and traveling like few times before. I think it has to do, once again, with the post-Covid pandemic behavior. Occasionally you will hear about some kind of slowdown in travel. I know there was an attempt to pin Brian Chesky, CEO of Airbnb (ABNB), on slower spending on larger homes in the fourth quarter. I can tell you from my own research after speaking with him about “Mad Money” that nothing could be further from the truth: That’s something Marriott (MAR) and Expedia (EXPE) confirmed. Not surprisingly, we continue to see strength in hiring for travel, leisure and entertainment. However, there is actually nothing visible to stop this giant. Now I am not ruling out the slowdown in housing. That’s so palpable that the folks at Zillow (Z) on his call made sure he knew it’s a terrible time to buy a home, given the incredible Federal Reserve interest rate hikes we’ve seen. I know Powell mentioned the “delay” in the legendary 2 p.m. But there is no delay in housing. We also heard some discouraging words about cars from Ernie Garcia, CEO of the incredibly challenged Carvana (CVNA). He sees tough times for used cars. Negative comments from him sent his shares down nearly 39% on Friday as many worried he may not have the capital to keep up the pace of sales he anticipates and capital and even debt markets may be closed to your company. But he isn’t seeing the kind of weakness that is bringing down major players in the industry. Calls from Carvana and Zillow aren’t resonating because auto and housing companies have already seen their stocks crushed. Which brings me back to the techies who heard CEOs almost in unison say the terms “macroeconomic uncertainty” and “headwinds” over and over on their conference calls. Unlike housing and auto stocks, these hit right on the chin every time. Some of the drops we saw were wildly overblown, notably Atlassian (TEAM), which was down almost 29% on Friday, and Cloudflare (NET), which was down 18%. They are both excellent companies. But we’re just not used to seeing companies of this quality ever experience slowdowns, because they help companies 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 sank more than 18% on Friday. Heaven knows many of them were created during boom times, and their stock was crushed when they cut their forecast. I found myself thinking: did anyone think they would bring it up? Perhaps so, because the people who own these stocks and their ilk simply must not have seen the slowdown coming until last week. They abandoned these stocks at a record pace. But the liquidation was not just limited to companies that are not used to stumbling. Shares of Twilio (TWLO), which makes excellent customer management and retention software, blew up once again and was once again down sharply, down almost 35% on Friday. Of course, these stocks were stocks so highly prized that the creators of exchange-traded funds (ETFs) put basket after basket together so they were all linked. Even the best ones like ServiceNow (NOW), with a big surprise to the upside and a 13% gain on Oct 27, couldn’t take the onslaught and have given back all that gain and then some. Compare that to, say, any car or home that isn’t digitized and you’ll see hardly a decline, if not an outright advance, as these stocks are derisked, meaning only the callous or endlessly hopeful of a quick -Completing the cycle they continue in them. When I dig into software flaws to see what they mean about headwinds and how they’re affecting businesses, I get data that remains concerning for all things tech. The first is a so-called “top-of-the-funnel” issue, which means that attempts to get customers are slowing down. Acquiring new customers simply takes longer, or “draws out,” which is the buzzword of the moment. Existing customers are retained at the usual rate, so retention is not the issue. But getting them to do more seems increasingly difficult. The so-called land and expansion just isn’t happening. They are landing less and there is not much expansion. There are some customers limping around. Fintechs are not spending; reasonable given how much they have already spent. Crypto companies are on the ropes and their problems extend to the ramshackle media sector. But I think there are simply not enough financed or publicly traded companies that need the software. At the same time, these once-thriving tech companies that saw an ever-expanding funnel somehow didn’t seem to see any of this 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 fire people. However, the latter is very rare. That will not be the case next quarter, believe me. To me, this all boils down to holding stock in the companies that anticipate weakness, which are the textile companies that stand to benefit hugely when their gross costs drop next year and the dollar struggles after its incredible run, or companies that are actually leveraged for a consumer who remains liquid and likes to spend on smaller luxuries, like cosmetics, Estee Lauder (EL), or iced lattes, like Starbucks (SBUX). Now I’ve repeatedly focused on semis, and they know they need stronger PCs and servers and games and cell phones. If you see that they are stronger, let me know. I do not. But this software sell-off is very reminiscent of the 2001 debacle. The only difference: Many of these companies can be profitable. They just don’t want to be. That’s changing now, but not fast enough to handle the moment we’re struggling and a group of stocks that just haven’t bottomed out yet. How do you hit bottom? As it always does. Mergers and bankruptcies with only those with the money in the banks and the strongest customers coming to where the Fed finishes tightening and customers come back to life. (Jim Cramer’s Charitable Trust is long AAPL, GOOGL, EL, and SBUX. See here for a full list of shares.) 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 foundation’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 FOREGOING INFORMATION ON THE INVESTMENT CLUB IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH OUR DISCLAIMER. NO FIDUCIARY DUTY OR OBLIGATION EXISTS, OR IS CREATED, BASED ON YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR BENEFITS ARE GUARANTEED.
Jim Cramer on NYSE, June 30, 2022.
Virginia Sherwood | CNBC
Many companies were booked last week. We saw weakness in a host of industries, from media to gaming to cloud computing to software sales. The pain in the technology sector seems to have no limits, since this month we celebrate a year since the nasdaq it last closed at an all-time high. (To be clear, I’m not talking about the Apple (AAPL) statement Sunday night on iPhone 14 Pro and Pro Max issues due to production standoff due to covid restrictions in china. That’s because they are related to supply and not demand.)