Mad Money 01/14/26 | Audio Only

Mad Money - January 26, 2024: Market Analysis & Stock Discussion

Key Concepts:

• Market Thesis: The underlying belief driving market movements, currently shifting towards defensive stocks.
• Magnificent Seven: The seven large-cap tech stocks (Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, Meta) that have driven significant market gains.
• Cyclical Stocks: Stocks whose performance is closely tied to the economic cycle (e.g., banks, industrials).
• Defensive Stocks (CPGs): Stocks of companies producing essential consumer goods, considered less sensitive to economic downturns.
• Parabolic Move: A rapid and unsustainable price increase in a stock.
• Schnitelling: A trading strategy involving selling a portion of a stock to create room to buy back at a lower price if it declines.
• Secular Growth Stocks: Stocks expected to grow consistently regardless of economic conditions.
• OBV (On Balance Volume): A technical indicator measuring buying and selling pressure based on volume.
• RSI (Relative Strength Index): A momentum indicator measuring the magnitude of recent price changes to evaluate overbought or oversold conditions.

I. Market Shift & Leadership Concerns

Kramer observes a concerning shift in the market’s leadership. While overall averages (Dow, S&P 500, NASDAQ) show modest declines (Dow -42 points, S&P -53%, NASDAQ -1%), the underlying trend is problematic: the wrong stocks are rising. A healthy market rally is typically led by growth stocks with cyclicals performing well alongside, but not dominating. Currently, consumer packaged goods (CPGs) and oil stocks are leading, indicating a defensive, recessionary mindset. This is contrasted with the previous year’s “jovial bull market” driven by the Magnificent Seven and growth stocks like Eli Lilly. The rise of CPGs and oil stocks is viewed negatively as they represent recessionary fears and a zero-sum economic relationship, respectively.

II. Banking Sector Concerns & Credit Card Rate Cap

A significant drag on the market is the performance of bank stocks, which are falling despite generally good earnings reports. The primary concern stems from President Trump’s stated intention to cap credit card interest rates at 10%. Kramer argues this would be disastrous, as it would make lending unprofitable for banks, restricting credit access to all but those who don’t need it, ultimately harming the economy. He acknowledges the political surprise of this stance coming from a Republican, comparing it to proposals from Senator Elizabeth Warren. The potential impact extends beyond banks, negatively affecting retail and travel sectors reliant on consumer spending fueled by credit. The market’s reaction to this possibility is driving money out of banks and into defensive sectors.

III. Stock Specific Analysis & Trading Strategies

• Procter & Gamble (PG): Despite weak business outlook, P&G’s stock is rising, signaling investors are flocking to safety in anticipation of economic slowdown. The Travel Trust holds P&G as a hedge.
• Johnson & Johnson (JNJ): JNJ is also rallying, driven by investors seeking safety and a perceived “fountain of youth” effect. Kramer believes the rally is too rapid, fueled by money rotating out of higher-growth stocks.
• IBM: Highlighted as a legacy tech company successfully reinventing itself. The stock has broken out of a double bottom pattern and is showing strong momentum indicators (MACD crossover, rising OBV, RSI not overbought). Potential resistance levels are identified at $315 and $335-$345.
• Cisco: Another legacy tech success story, Cisco is showing signs of recovery after a December sell-off. Breaking above its 50-day moving average is a positive signal.
• Intel: Benefiting from government investment and a turnaround under new CEO Pat Gelsinger. The stock has experienced a significant rally but is currently overbought.
• Wells Fargo (WFC): The Travel Trust sold a portion of its WFC holdings after the earnings report, despite generally positive trends, due to the stock’s parabolic run-up and potential for further decline. Kramer believes a further pullback is likely.
• Bank of America (BAC): Reported a solid quarter, but the stock was dragged down by the broader negative sentiment towards banks. Kramer views this as an overreaction and believes BAC is fundamentally strong.
• Citigroup (C): Another solid quarter, with the bank’s transformation nearing completion. Despite positive results, the stock didn’t rally due to the overall market downturn. Kramer considers it undervalued.
• AutoZone (AZO): A caller inquired about AutoZone. Kramer believes the stock is fine and a good buy after a recent inconsistent earnings report, anticipating a rebound in the next quarter.
• Southern Copper (SCCO): A caller asked about adding to their position. Kramer advises against it, stating the stock has already had a significant run-up and is no longer cheap.

IV. The "Schnitelling" vs. "Holding" Philosophy

Kramer emphasizes a distinction in trading strategy based on stock type. Cyclical stocks like banks should be “schnitelled” – a portion sold to allow for repurchasing at lower prices if the market weakens. However, secular growth stocks (like Nvidia) should be held long-term, resisting the urge to trade based on short-term fluctuations. He recounts the success of investors who held Nvidia despite volatility, highlighting the importance of patience and a long-term perspective.

V. Data & Statistics Mentioned

• Dow Jones Industrial Average: Down 42 points.
• S&P 500: Down 53%.
• NASDAQ Composite: Down 1%.
• Texas Instruments: Represents 2.5% of the S&P 500.
• Credit Card Default Rate: 3-5%.
• JP Morgan Stock Performance: Down over 5% in the last two sessions, previously up 35% over the last 12 months.
• Wells Fargo Stock Performance: Down significantly after earnings, previously up 35% over the last 12 months.
• Bank of America Stock Performance: Down 4% despite a strong quarter, up 18% EPS growth.
• City Group Stock Performance: Up 66% last year, currently undervalued.
• IBM Stock Performance: Nearly tripled since late 2022, up over 40% in the last 12 months.
• Cisco Stock Performance: Up 25% over the last 12 months, recently experienced a December sell-off.
• Intel Stock Performance: Significant comeback, up substantially.
• Nvidia: Investors who held the stock have become millionaires.

Conclusion:

Kramer identifies a concerning shift in market leadership towards defensive stocks, driven by fears of economic slowdown and political uncertainty surrounding credit card regulations. He advocates for a nuanced trading strategy: “schnitelling” cyclical stocks while holding onto secular growth stocks for the long term. He emphasizes the importance of understanding the underlying drivers of market movements and adapting investment strategies accordingly, while remaining focused on long-term value and avoiding impulsive trading. He reiterates his core philosophy of owning quality stocks and resisting the temptation to trade frequently.