Jim Cramer has a direct message to investors: tread cautiously this month.
“Welcome to September, the most treacherous of months,” Cramer said in a recent Real Money column. “Be ready for volatility — a Wall Street code word for a selloff.”
Cramer is a huge believer that the stock market is driven not just by the Federal Reserve, but by how companies are doing. “Earnings, sales, the pedestrian day-to-day stuff is what I care about, because it’s what drives the vast majority of individual moves,” he noted. “The numbers, the reports, have been phenomenal for ages. We have been spoiled by earnings surprises seemingly forever, positive earnings surprises.”
But that was then and this is now.
“This week, we’re seeing the nasty side of earnings surprises, the downside, and we’re not used to it,” Cramer added. “Two venerable companies, Sherwin-Williams (SHW) and PulteGroup (PHM) reported disappointing quarters owning to supply chain problems and inflationary raw material costs. These comments come on top of [the] announcement from PPG (PPG) , the coatings company, which surprised a second time with a predicted shortfall.”
These problems aren’t going away. “No wonder the Federal Reserve’s Beige Book, the board’s assemblage of reports, showed continued elevated inflation,” Cramer said.
Then there’s the Fed’s position that inflation is transitory. That’s a bad take from economic policy makers.
“That position is keeping the Fed from ending bond buying to keep rates low, let alone raising rates,” he added. “The intractable nature of these announcements like the ones we saw with PulteGroup and PPG, though, the supply chain and raw cost refrain, just can’t be put to rest. It’s like the semiconductor shortage that is confounding so many different industrials, leading to higher prices seemingly everywhere we look. That’s going to put tremendous pressure on Fed Chief Jay Powell to change his stance.”
Cramer brings forth another recurring problem – high government spending.
“Many Democrats in Congress and the president want gigantic stimulus packages that are sure to produce job offerings,” he said. “There’s only one issue — we already have almost 10 million unfilled jobs. We have far fewer people looking for jobs than we thought. The only way these new jobs created by the government will be filled is by offering higher wages than currently available.”
That’s inflationary in itself, Cramer said. “But if you kill the stimulus package, then those on Wall Street who are depending upon it to prop up cyclical stocks will be disappointed. So, we are darned if we do and darned if we don’t. The Fed will have to raise rates to stop the inflation that Congress is causing. Or Congress lets the bulls down and causing an economic downturn.”
Does Cramer think that we can deal with all of these issues? “Yes, but not at once, at least not without lower prices and lower prices is what September is all about,” he noted.
Get more trading strategies and investing insights from the contributors on Real Money.
