As we enter 2022, we told club members that the time to play so-called story stocks is over, as inflation hits high and the Federal Reserve is at war to beat it. rice field. I know the kind of stocks we’re talking about, stocks of companies that aren’t making money but instead tell a grand tale of future profits, probably thanks to a huge addressable market. , Jim Cramer said investors should look to companies that make things and do things for profit, which they can return to shareholders through share buybacks and dividends. As time has passed and it has become clear that we see the Fed’s policy rates rising in the I commented that one is valuation. Peers and past levels. So we’ve added it to his 2022 guidance. The Fed’s action shrunk the multiples for stocks that boosted sales and earnings, but was too high in a world of positive real interest rates. The more we sold these types of shares, the more money we saved. As we wrap up the book in 2022 and look ahead to 2023, I would like to once again inform the members of his thoughts on the coming year, his view of the world, so to speak. Interest rates next year he is expected to be 5.5% First, the Fed believes that interest rates may be raised to he 5.5%. Unemployment remains low and wage inflation continues to rise as a result. The Federal Reserve on Wednesday said officials will look at the endpoint rate when rate hikes end at 5.1%, a question that hopes will rise as he discussed on Thursday at his “monthly meeting” in December. is. There’s still too much hope and not enough affordability concerns. In other words, consumers are still too willing to accept and pay higher prices. Until that is gone, prices will continue to rise and the Fed will have no choice but to keep raising rates. Fed has to deal with wage inflation Commodities other than copperhis inflation, and consumer inflation other than food and new cars are benefiting from the easing dynamics in supplyhis chain and already seem to be behind . But unless people reconsider the cost of their current lifestyle, inflation will hit a floor somewhere above his 2%, forcing the Fed to tighten further. In this scenario, we’re looking at a ramified market where people who don’t need credit to survive, or who are wealthy enough to have cheap credit, can do just fine. Maybe they can even get out of this inflationary period thanks to the surplus money they invest at these depressed asset price levels. And companies that rely on credit do poorly, and even worse when battered assets need to be sold to fund more pressing needs. This is true not only for consumers, but also for businesses that rely on debt. Because the latter will have to pay more for its debt. Of course, it affects profit margins. Companies are forced to abandon growth efforts in order to focus on necessary maintenance investments. 2023 Will Be The Year The Fed Wins Fortunately, next year he expects to be the year the Fed wins on inflation, so this view is not optimistic. thinking about. It’s also why we hold some stocks that don’t do well in a world of 5.5% interest rates. Because you need stocks that can withstand the pressure and rise once you start seeing inflation indicators come back to reality. What we want to see is continued inflation trending back to his 2019 levels. It hasn’t fallen short of expectations, but it’s actually flattening out or even declining. Jim said he would like to see these trends continue in the consumer price index (CPI), the producer price index (PPI) and the wage component of the government’s employment report. We look at it and are pleased to have retained a tech name that has been squashed this year. In short, his final base scenario for 2023 at this point is his two halves story. The first is brutal, featuring the Fed saying and doing anything to bring inflation back to its 2% target. To stop wage inflation, raise interest rates until the unemployment rate rises above 4%. Second, the Fed will declare victory and end rate hikes, improving investor sentiment and supporting the economy. The first half is good for stocks that benefit from inflation, such as consumer goods, healthcare, and energy stocks. As data come in indicating inflation rollover, we’ll rethink these names in the second half and look for ways to throw cash at vanquished names that may resurrect with vengeance. To do so, we focus on companies that make things and do things for profit. It has an attractive rating. Return cash to shareholders through dividends and buybacks. Moreover, even if a shift does occur, interest rates are expected to stop rising, but not immediately reverse. We’re looking to reallocate funds for the second half of this year to stocks most pressured by inflation dynamics, but not to Story stocks, which thrived during the Covid pandemic. The focus remains on earnings, cash flow, and reasonable earnings-based valuations, as positive real interest rates demand real returns on rationale valuations. (For a complete list of Jim Cramer’s Charitable Trust shares, see here.) Subscribers to Jim Cramer’s CNBC Investing Club receive trade alerts before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling shares in his charitable trust portfolio. If Jim talks about his stock on his CNBC TV, he will wait 72 hours after issuing a trade alert before executing the trade. The investment club information above is subject to our Terms of Use and Privacy Policy, along with our disclaimer. No fiduciary duty or obligation exists or is created by your receipt of information provided in connection with The Investment Club. No specific results or benefits are guaranteed.
Jim Cramer in Squawk on the Street on June 30, 2022.
Virginia Sherwood | CNBC
As we enter 2022, we told club members that the time to play so-called story stocks is over, as inflation hits high and the Federal Reserve is at war to beat it. rice field. I know the kind of stocks we’re talking about, stocks of companies that aren’t making money but instead tell a grand tale of future profits, probably thanks to a huge addressable market. , Jim Cramer said investors should look to companies that make things and do things for profit, which they can return to shareholders through share buybacks and dividends.