Cramer on the astonishing rise of offensive stocks — and what could come next

Sometimes the stocks say it all. When I went over about 1,000 stocks this weekend, I was astonished to see that the stocks with the strongest charts were those in the most offensive categories. Whether it be levered steel companies U.S. Steel (X) and Cleveland-Cliffs (CLF); chemical company Westlake (WLK); homebuilders like PulteGroup (PHM) and D.H. Horton (DHI); aggressive retailers Abercrombie (ANF) and Gap (GPS); or, of course, every oil company, there’s a pattern of amazing strength. Banks big and small have also been rallying, which appears to be about fewer bad loans. Their strength says: “We don’t need to worry about defaults because the consumer is holding up.” No wonder Club holding Wells Fargo (WFC) is a stand out. So is JPMorgan Chase (JPM). They are the two big banks that are at a cross section and hold a ton of loans and deposits. The collective judgment of the market is that both firms will make good on those loans. It’s the kind of brawn that indicates the Federal Reserve is going to slow interest rate hikes , meaning we may see a mild recession this year at worst. On the other hand, it doesn’t seem to matter how well defensive stocks are doing, or that headwinds of raw material costs and supply chain issues are abating. Not even a weaker U.S. dollar has meant anything to brace these stocks from a further fall. There’s one group, though, that’s just plain hard to call, and that’s tech. Hardware tech looks strong. Software tech looks weak. Enterprise tech appears disastrous. Semiconductors are trying. But megacaps? That’s a lot wood to chop. What’s happened here? We know that all of the different inflation indices are on the way down, or are rolling over. The box had been checked on commodities for ages. A peak in services and consumer prices seems to be in sight or, in some cases, the rear view mirror. But the battleground is wages. The U.S. unemployment rate is still too low. It’s so difficult to figure out how wages can go down or even stabilize when jobs are so easy to come by. Somehow the stocks are saying this is the quarter when layoffs will start to cascade. I’m not so sure. We have had some sizable layoffs at Club holdings Amazon (AMZN), Alphabet (GOOGL), Microsoft (MSFT) and Salesforce (CRM). But we are dealing with the wealthiest of the wealthiest, who are simply being prudent. At this point, after a gigantic series of rate hikes, you would have to believe that we would see weakness in the homebuilding industry and layoffs in anything related to housing. But there’s been no pressure on their margins. It’s incredible how bullish that is. And, at the same time, we have almost no bankruptcies. Most of all, we aren’t seeing any closures or even concern among all of the enterprise software companies. The stock market is inhospitable to more fund raises or initial public offerings. But the Fed can’t just rely on megacap technology firms to be the ticket to a slowdown in rates. I don’t want to go against this move. It’s so tempting to buy more Johnson & Johnson (JNJ) for the Club portfolio, but I can see it falling more if it doesn’t blow out the quarter. Procter & Gamble (PG) reported such a strong fiscal second quarter last week, but the market interpreted the results as weak. That’s because of this dichotomy whereby investors appear to want a steel-mill stock much more than the kind of stock you buy in a recession. But I also don’t believe that the chorus predicting a so-called hard landing, or major recession, for the economy has been silenced. I judge by stocks, but the lazy intellects who are addicted to watching bonds — and see the yields on the 2-year Treasury and the 10-year Treasury — won’t stop with the hard-landing thesis. They have the microphone so often because it’s just easier to read the bonds than the stocks. Most of these people don’t even know what an individual company does. But we are now in blackout mode for Fed officials ahead of the central bank’s meeting at the end of this month, which means less chatter about more aggressive rate hikes. Right now, though, we have to see if there are any earnings reports that will change the direction of these unlikely winners. Each of the megacaps has its own issues. Why did Alphabet and Microsoft let so many people go? How did Microsoft rally eight points Friday? Will Alphabet’s numbers come up? Amazon’s not done enough to create a better bottom line. Meta’s getting to be a sideshow. And Apple’s the problem. I want to overlook the quarter, but will others? I think that we will get lower prices for the recession camp, but then we will have to buy those stocks just because they will be cheap versus the bonds. The bulls are involved now. But because tech’s regarded as the market by so many, it just doesn’t feel like it. I urge two things: Don’t be blinded by the bonds and don’t be confused by the action in the large techs. Astoundingly, both might be sideshows to all those who actually bother to look at individual stocks. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) 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. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

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