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Jim Cramer - Mad Money A Comment -- General Comments From an Expert A Commentary COMMENT Jan 22, 2025
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US Fed's Jerome Powell has signified he will start to cut interest rates and he's very dependent on data. There's a slowdown in labour demand, but the borders are shut to prevent new labour from entering. Super-core CPI is Powell's key indicator, at 3.2% now. But there are many people on the Fed board and some fracturing of opinion. It's possible a new Fed chair will be more malleable to the president, but he frets over that.
After Jerome Powell's remarks last Friday, stocks ripped, but not bonds. We didn't learn much from his speech, except that September is on the table. Futures indicate 5 rate cuts from now to the end of 2026. He expects Powell to cut 0.25% in September with the market pricing that by 80-85%. It was slightly less than before Powell spoke. Canadian futures indicate 1 more 0.25% cut by mid-2026. Therefore, the US will cut more aggressively and catch up to Canada. Canada is way structurally weaker than the US, and the CAD lacks a catalyst to rally. Normally, the CAD would rally a lot. Maybe the CAD reaches 75 cents, unless there is a rocky Sept-Oct and trade negotiations get rocky. Those with lots of USD exposure in ETFs should consider moving that into a hedged version should the CAD drift to 70 cents in the next few months.
We are heading into September which is seasonally weak. The recent message from Jerome Powell hinted at inching into rate cuts. Inflation has been cooling but the fight is not over. They want to see the core inflation at 2%. Another question is: will tariffs feed into higher pricing into the fall. The labour market is slowing but steady enough to avoid recession fears. Equities are holding up fairly well and earnings strength is spreading beyond tech. The equal weight S&P is starting to rally. Investors are shifting from tech to other sectors so this will create diversified portfolios. Canada is a softer echo of the U.S. Real estate and energy showed a little pop and consumer discretionary and healthcare are starting to show signs of strength. Expect volatility and she advises to start taking profits and reduce risk.
Investing 101: Understanding Risk
It is important to understand how much you are able to invest. Put differently, how much can you afford to risk and potentially lose in the markets? A general concept in investing is that one takes on higher risks for higher rewards. However, it is important to understand that higher risks will not necessarily always translate into higher rewards and one has be able to identify risk-to-reward scenarios that makes sense for his/her own investment portfolio.
Another element to understanding risk relates to the personal finance side of things. A rudimentary part investing is knowing how much disposable income you have and how much of your savings are not needed in the short term (approx. 1-2 years). Investing one’s entire life savings in the markets while on a tight monthly budget, is likely a bad idea and risky thing to do.
A counterpoint to not taking on too much risk is considering whether one is taking enough risk to realize his/her goals. For example, if one holds too little in risk asskets like equities and too much in safer assets like bonds, the opportunity cost is potentially huge for someone investing over a long period of time. That is a risk in and of itself.
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There's been A LOT of volatility this year, from the Epstein files to the bombing of Iran and today Trump complaining about the Cracker Barrel logo. What is this all about? Can Trump legally fire the Fed governor? This will be messy to resolve through the courts. Trump is pressing the Fed to lower interest rates. The stock market is at record highs, so there's a disconnect between the market and economy. Typically, you cut rates when the economy starts to weaken. Some areas are, like job losses and company bankruptcies. Suppose the stock market corrects during a rate cut? We cut see a 25 bps cut in the U.S., but no more, based on conditions. If there were no tariffs, inflation could decline. If tariff inflation gets bad, there will actually be a need to raise rates.
He's held cash for about 3 months now, as he typically likes to hold cash over the summer. He shuffled a few things around.
Continues to believe that certain tech stocks (Mag 7) are way overvalued. So he's been trying to go into whatever is not in that category -- value stocks, commodities, etc.
He's seeing it flow into a lot of the defensive sectors. This tells us something.
It was all about tech since the April selloff. But as of the middle of August onward, tech has taken a backseat. They had a bit of a bit last week with the speech from the Fed. But $$ is shifting into the defensives -- staples, utilities, industrials, and even healthcare (the dog of the universe for the past few months). He did a video last week that showed relative performance of the sectors.
Not a bad idea to choose from these sectors and avoid tech.
You might just as well ask, "Why did it snow last January?" There are a lot of vacations and golf playing and so forth. Volumes are always low over the summer.
All he does is pay attention to patterns, and half the time he doesn't care about the "why" of stocks behaving the way they do. Whatever the case, as we get into October/November, you'll see that markets start to find a bit of legs. Probably because traders are off their vacations and are back at it.
When it comes to indicators, there's a longer way to look at it rather than just overbought/oversold. This could be a half-hour discussion by itself, so he'd steer the investor to a couple of videos.
He just recorded a video yesterday (being posted to his YouTube channel tonight) on how to prevent falling victim to topping stocks. He also did one a couple of days ago on bottoming stocks.
A Canadian company (such as ENB) is a Canadian stock. If you look at the chart for the US listing, you're now also looking at the effect of the currency exchange. That will distort things, so there's no point. For example, this year the USD got smashed; once converted, that would make the US chart for ENB artificially look better than it actually was.
So for a Canadian company look at the Canadian chart. For a US company look at the US chart.
It may not matter what the Fed does; the matter may no longer hand on every move the Fed makes or guess and guess what that will be under Trump. We may revert to a case where the Fed plays a role only in extreme moves.