Last week, many companies were clocked. We saw weakness across a variety of industries, including media, gambling, cloud computing and software sales. As we mark one year since the Nasdaq’s last record closing, the pain in the technology sector seems unassailable. (I am not referring to the Apple (AAPL), Sunday evening release about the iPhone 14 Pro/Pro Max issues due a showdown of production due to Covid restrictions China. These are supply-related, not demand-related. We also saw remarkable growth in the industrials. Despite a slow start to November, the Dow Jones Industrial Average posted a 14% increase in October, its highest month since 1976. There are many ways to gauge industrial strength. Some prefer to use rails, which showed strong numbers. Others prefer to fly, and they are as strong today as ever. To me, Nick Akins, American Electric Power’s outgoing CEO, is a treasure trove of wisdom. American Electric Power is the largest transmission power company in America. I was stunned to discover that his businesses are growing rapidly in chemicals, papers, primary metals, and, most importantly in oil and natural gas extracting. This is a typical snapshot from the American economy in 2022. It’s an economy that can’t seem be controlled by Federal Reserve Chairman Jerome Powell no matter what — even though there is a wholesale slaughtering of once-loved stock. This dichotomy can be seen everywhere. We are seeing tremendous manufacturing growth, as well as great increases in travel and leisure, and all that goes with it. We have layoffs and hiring freezes in technology, especially software and semiconductors. Combine industrials with the strength of travel and the associated spending, you get higher prices for consumers and more spending once they reach their destination. There is no sign that this spending will decrease. Mastercard (MA), Visa, (VA), and American Express (AXP), all confirm that Americans are traveling and going out like never before. It may have to do with post-Covid behavior. You will occasionally hear about a slowdown in travel. I have heard that Brian Chesky (CEO of Airbnb) was questioned about slower spending on grandiose housing during the fourth quarter.
After speaking with him on “Mad Money”, I can confirm that this is something Marriott (MAR) as well as Expedia (EXPE), confirmed. It’s no surprise that we continue to see strength when it comes to hiring for entertainment, leisure, and travel. This juggernaut isn’t slowing down, however. I don’t dismiss the slowdown in housing. It’s so evident that Zillow (Z), on their phone call, made it clear that this is a bad time to buy a home due to the Fed’s incredible interest rate hikes. I believe Powell mentioned the “lag”, in the famous 2 p.m. Fed rate hike. ET statement following the November meeting of the central bank — before his portfolio-stuffing conference. Housing is not in a rut. Ernie Garcia, CEO at the Carvana (CVNA), a very difficult company, also spoke negatively about autos. He predicts difficult times ahead for used vehicles. His stock fell nearly 39% on Friday due to his negative comments. Many fear that he doesn’t have enough capital to keep the pace of sales and equity he envisions. You aren’t seeing the same level of weakness that is driving down industrials’ main players. Because the housing and auto companies have already lost their stock, Zillow and Carvana’s calls aren’t making any sense. This brings me back to techs who heard CEOs repeat the words “macroeconomic uncertainty” over and over again on conference calls. These techs took it on the chin every time, unlike the housing and auto stocks. Some of the declines that we saw were exaggerated, such as those of Atlassian (TEAM), which was down nearly 29% on Friday, or Cloudflare, which was down 18%. Both are great companies. We are not used to seeing companies like these experiencing slowdowns. They help companies digitize and automate, and develop new software. Every buzzword we know. Appian (APPN), a company that provides enterprise software solutions, said the same thing to me. Another stock that plunged more than 18% on Friday was Appian. It is likely that many of these were created during boom times. The stock plummeted after it reduced its forecast. I was left wondering if anyone thought they would raise it. Perhaps so, as the stockholders and their ilk had not anticipated the slowdown until last week. These stocks were sold at an unprecedented rate. The sell-off was not limited to companies that aren’t used to stumbling. Twilio (TWLO), a company that makes great customer management and retention software, went up again. It fell nearly 35% on Friday. These stocks were so popular that the exchange-traded funds (ETF) creators created basket after basket of them so that they could all be linked. Even the best, such as ServiceNow (NOW), which had a huge upside surprise and a 13% jump on Oct. 27, couldn’t withstand the storm and has given back all of its gains and more since then. Contrast that to, say, anything auto or housing that is not digitized and you will see barely a decline if not an outright advance as these stocks are de-risked, meaning that only the braindead or the endlessly-hopeful-of-a-quick-ending to the cycle are still in them. To understand the implications of software failures and how they impact companies, I find data that is troubling for all things tech.
The first problem is what we call “the top” or the slowing of attempts to acquire customers. Acquisition of new customers is simply slower or being “elongated”, which is the current codeword. Existing customers are being retained at their usual rate, so retention shouldn’t be a problem. However, it seems that getting them to do more seems increasingly difficult. The so-called land and grow is not happening. Fewer people are landing, and there isn’t much expanding. Given how much they have spent, fintechs aren’t spending. The financial problems of crypto companies extend to the bedraggled media industry. But I believe that there aren’t enough companies going public or being funded that require the software. These once-thriving tech companies, which saw an ever-expanding channel, didn’t seem able to see any of it coming. Many, including Alphabet (GOOGL), still hired in the spring and early summer. Many companies have the highest number ever of employees. They tend to freeze hiring, but some are also starting to lay off employees. However, this is rare. I’m confident that this won’t be true next quarter. All of this is a cut to sticking with stocks of companies who either anticipate the weakness, which is the soft goods companies that will greatly benefit when their raw cost come down next year and dollar struggles after its amazing run, or the companies actually that are levered to a customer who remains liquid and likes small luxuries like cosmetics, Estee Lauder EL, or ice cold lattes like Starbucks (SBUX). Semis are the most important, and I’ve seen them need better personal computers, servers, gaming, and cellphones. Let me know if you see them being stronger. I don’t. This software sale is very similar to the 2001 disaster. One difference is that many of these companies can be profitable. They don’t want it to be. This is changing, but not fast enough for the moment we are struggling with and a group that hasn’t yet reached bottom. How does bottom become hit? It always does. Bankruptcies and mergers that only the wealthy and most powerful clients can afford. The Fed tightens the belt and customers are brought back to life. (Jim Cramer’s Charitable Trust has AAPL, GOOGL and EL. For a complete list of stocks, please see here. You will receive a trade notification as a subscriber to CNBC Investing Club. Jim will not make a trade until you have received it. Jim waits for a trade alert to be sent before buying or selling stock in his charitable trust portfolio. Jim may wait 72 hours after issuing a trade alert to execute a trade if he has discussed a stock on CNBC TV. OUR TERMS, CONDITIONS, AND PRIVACY POLICY APPLY TO THE ABOVE INVESTING CLUB INFORMATION. NO FIDUCIARY OBLIGATION, DUTY, OR EXISTS BY THE RECEIPT OF ANY INFORMATION CONNECTED WITH THE INVESTING CLUB. CNBCLots of companies got clocked last week. We saw weakness across a variety of industries, including media, gambling, cloud computing, and software sales. As we mark one year since the Nasdaq’s last record closing, the pain in the technology sector seems unabated. (I am not referring to the Apple (AAPL), Sunday evening release about the iPhone 14 Pro/Pro Max issues due a showdown between production and Covid restrictions in China. These are supply-related, not demand-related.
World News1 year ago
World News1 year ago
World News1 year ago
World News1 year ago
World News1 year ago