Why the market shifted to defense, plus the lingering hangover of Dell’s backlog

By News Room Last updated Jun 4, 2024

Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street. (We’re no longer recording the audio, so we can get this new written feature to members as quickly as possible.) Shift to defense: Usually, the market likes falling Treasury yields and stocks rally with bonds. Lower rates can make dividends look more attractive on a relative basis and expand the multiples investors are willing to pay for stocks. But that’s not what’s playing out Tuesday. The market is mixed with a distinct defensive shift even as rates fall. The groups trading higher are consumer staples and healthcare, while more economically sensitive sectors like materials, energy, the banks, and industrials lag. You tend to see staples and healthcare outperform when the market gets concerned about economic growth, and that’s been playing out over the past couple of sessions after a weak ISM manufacturing report Monday and a big miss in the Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) on Tuesday. Sell into strength? With the market falling in love with staples today, it begs the question: Should we sell into this strength, take gains in Procter & Gamble , and earmark that cash to buy a company with a stronger growth outlook? “We took off some P & G at this level in May ,” Cramer said, “but I must admit that I think once again the stock is vulnerable.” It’s a good debate to have, but with the market just rediscovering these names Tuesday we may wait and see if we can trim a few more points higher. The 1.3% move up in Costco , on the other hand, “is instructive to how the market is viewing the consumer which is way too stretched,” Cramer said. “I think that does a disservice to Costco, whose value appeals to all types of consumers. That is why it is not going down like usual after earnings.” Power outage: Jim points out that the market is still dealing with the hangover of Dell ‘s backlog, which surged 30% year over year but failed to meet the “whisper number” of the more bullish buy side. Although Dell’s stock is stabilizing after plummeting more than 20% since earnings, the electrical equipment and power generation theme that rallied on AI data center build-out expectations has struggled to find its footing. “We can’t seem to mount any sort of rally for the likes of Club stocks Eaton and Dover . I think they should be bought into this weakness” Cramer said. Up next: Earnings after the bell from CrowdStrike , the cybersecurity leader who has never missed a quarter. Wednesday morning we’ll hear from a couple of discount retailers in Dollar Tree and Ollie’s Bargain Outlet , and a couple of consumer goods companies in Campbell Soup and Brown-Forman . On the data front, we’ll get another look on Wednesday at the labor market from the ADP employment report and then services from the May ISM Services report. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Dell Technologies CEO Michael Dell speaks during the MWC session ‘New strategies for a new era’ on the first day of the 18th edition of the Mobile World Congress (MWC) at Fira de Barcelona’s Gran Via venue in L’Hospitalet de Llobregat on February 26, 2024, in Barcelona, Catalonia, Spain.

Kike Rincon | Europa Press | Getty Images

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