Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday, October 9.
Cramer said he has been a stock market bull for a long time, but there are moments when he gets cautious and re-evaluates his position. "The universe of potential winners does feel, at least to me, like it's getting smaller. I am not saying you should sell everything. If you've been saving up for your retirement by putting money in an S&P 500 index fund, something that everybody should do, you don't need to touch that position. But when it comes to a number of individual stocks, things have suddenly gotten a lot more risky," he added.
He is concerned about Fed chair Powell's stance on raising interest rates one more time in 2018 and 3 times in 2019. Cramer advised that Powell should take notes from former chair Janet Yellen's data-driven approach.
When Cramer speaks to CEOs, they were bullish until 6 months ago but they are now starting to get worried. The slowdown in housing, autos and loan growth worries them, along with rising fuel costs. Be it FedEx's (NYSE:FDX) earnings miss or PPG (NYSE:PPG) raising paint coating prices, the signs are negative. It was only months ago that PPG was bullish and it has suddenly turned negative. This announcement casts a shadow on a lot of industries.
"If all of these industries are having issues, then what the heck is the Fed doing with this autopilot nonsense? But the universe of companies that are doing well is growing smaller," he said.
The US-China trade dispute and the IMF's dim global growth outlook is taking a toll on the stock market. "I think we can go higher, but the stocks taking us higher are the wrong stocks if you believe the economy's in good shape. They're the right stocks if you believe, well, that I'm right and we could have a Fed-mandated slowdown," he concluded.
The interest rates are rising. What will be the impact on the stock market if they continue to rise? Cramer dug into the charts with the help of technician Bob Moreno to find out.
Moreno compared the charts of 20-year Treasury yield to the Consumer Staples ETF (NYSEARCA:XLP) which showed that interest rates have an inverse relationship with consumer staples going back to 1999. This relationship became highly correlated since 2010 as the interest rates went down.
When the interest rates start going down again, the consumer staple stocks will rise again as they are good bond-market equivalents.
When Moreno compared Philip Morris's (NYSE:PM) chart with interest rates, he sees an inverse head and shoulder pattern which means it could fill the gap that was made in April when the interest rates go down.
Citigroup (NYSE:C) has been making higher highs and higher lows since June. Its 50-day moving average crossed the 200-day moving average, which means that the stock is showing signs of rising higher. However, the big institutions are not buying as the stock rallies which is a negative sign of strength in the rally.
If the rates stabilize, homebuilders will make a comeback as their worst fears will not materialize.
Power Rankings - Consumer Discretionary
Cramer continued with the power rankings segment by assigning top five ranks to stocks in the consumer discretionary sector.
First rank goes to Amazon (NASDAQ:AMZN) whose Prime service has become a necessity and their advertising platform is gaining momentum by being the third in the space.
Second rank goes to TJX Companies (NYSE:TJX) which has not been affected by Amazon. Their strong earnings is proof of the fact. "When department stores are desperate to get rid of their seasonal inventory that didn't sell so they can bring in new product, they sell it to companies like TJX for a pittance," said Cramer.
Third rank goes to Kohl's (NYSE:KSS), which has been the best performing store of 2018. Cramer's trust has increased its position in Kohl's thanks to the tax cuts and strong job market tailwinds. The stock is up 31% already and is bullish on the coming holiday season.
Fourth rank goes to apparel manufacturer VF Corp. (NYSE:VFC) which is spinning off its denim brands business. "Basically, VF Corp. is paring back its non-essential divisions and focusing on their very best brands, creating a lean, mean earnings machine," said Cramer. The coming year could show good results for them.
Fifth rank goes to Nike (NYSE:NKE), which rallied on new product offerings and direct to consumer sales. Their business is booming and weakness in the stock is a buying opportunity.
Power Rankings - Consumer Staples
Consumer staple stocks are good bond market equivalents.
Second rank goes to Costco (NASDAQ:COST), which is seeing greater footfall and same-store sales thanks to their loyalty program. The stock is up 20% in 2018.
Third rank goes to McCormick (NYSE:MKC), whose acquisitions of Frank's Red Hot and French's Mustard are starting to show incremental earnings results for the company already.
The only traditional consumer staple stock is Clorox (NYSE:CLX), which get the fourth rank. "This is the kind of stock you buy when you're worried about the Fed-mandated economic slowdown that I am so concerned about," said Cramer. It's a solid company with a 2.6% yield.
Fifth on the list is Estee Lauder (NYSE:EL) which is seeing a turnaround. "Frankly, you could argue the cosmetic kingpin doesn't belong in this group, but for a lot of us, makeup is a necessity these days," said Cramer. Though the stock keeps posting good numbers, it's up just 10% in 2018.
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