Jim Cramer, the host of Mad Money, expressed concerns about the impact of rising bond yields on the stock market, suggesting that this trend could restrict the recent tech rally and limit broader sector gains. On Tuesday, he remarked that the bond market is creating significant disruptions, stating:
“Bonds are wrecking the narrative, driving the people outta everything that works when the Fed cuts rates and they’re going right back into tech. That’s the opposite of what, if you’re a true bull, you want to see.”
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Despite the Dow experiencing a modest decline of 155 points, the S&P 500 managed a slight increase of 0.16%, while the NASDAQ achieved a record close with a 0.78% rise on Tuesday. Cramer pointed out that the market is becoming increasingly narrow and exclusive, primarily benefiting tech stocks at the expense of broader participation, which he considers unhealthy. Cramer explained that this trend was somewhat anticipated.
He recounted how, when news broke about the Fed potentially implementing a 50 basis point rate cut, there was a surge of enthusiasm among investors who began buying bonds. They were betting on a series of rapid rate cuts, leading to expectations that bond yields would fall. Cramer noted, “It seemed a total legit thing, right? I mean the economy was slowing, that’s been the pattern historically.” He added that as inflation began to ease, it appeared that history was repeating itself.
However, following the significant rate cut on September 18th, something unusual occurred: long-term rates rose for the first time since 1995. This shift, which he described as a “total buzzkill,” is beginning to manifest in corporate earnings reports. He went on to say:
“If the bond market doesn’t start behaving, or at least calming down, if longer-term interest rates don’t stop going up, we’re going to start losing the groups that have led us higher for months now.”
In conclusion, Cramer warned:
“If it [the bond market] doesn’t stop its retreat, then we’re gonna start questioning the idea that the Fed will keep cutting rates, ushering in a fabulous economy for 2025, which is what I was looking for.”
Jim Cramer on Alphabet and Other Stocks
Our Methodology
For this article, we compiled a list of 7 stocks that were discussed by Jim Cramer during the episode of Mad Money on October 29. We listed the stocks in ascending order of their hedge fund sentiment as of the second quarter, which was taken from Insider Monkey’s database of more than 900 hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
7. Stanley Black & Decker, Inc. (NYSE:SWK)
Number of Hedge Fund Holders: 24
Talking about Stanley Black & Decker, Inc. (NYSE:SWK), Cramer did a deep-dive into its latest earnings report. Here’s what he had to say:
“Finally, there’s Stanley Black & Decker, which we own for the Charitable Trust… Putting it briefly though, Stanley Black & Decker posted a slight revenue miss paired with a 17-cent earnings beat off a $1.05 basis. Basically, revenue was light due to weaker consumer and automotive end markets, offset slightly by growth for the DeWalt brand. Now that is a brand that’s geared toward professionals, the regular Black & Decker brand is do-it-yourself.
But the company had excellent margins. The gross margin jumped nearly 300 basis points year-over-year, 300 basis points pretty good, which is what fueled the monster earnings beat and I like that.”
Cramer highlighted the company’s decision to adjust its full-year earnings forecast, noting that the company raised the lower end of its earnings range while simultaneously lowering the upper end by the same amount. He pointed out that it fell short of Wall Street’s expectations for a more optimistic outlook.
“Overall, I think the company’s doing a good job of controlling what it can control and making the business more efficient. However, Stanley Black & Decker’s still at the mercy of its end markets, and right now, there’s more bad than good. The thing that really hurt though, the reason why the stock plunged 8.77%, wow, is that management indicated the softness could extend to next year.
On the call, CEO Donald Allan explained, ‘We are optimistic that the markets will turn in our favor in the future as interest rate cuts in many geographies likely will prove to be an initial catalyst.’ But then he goes on to say, ‘There will be a lag (that’s the key word for me, lag) between lower rates and the flow-through to demand for our categories, and we expect choppy markets will extend into the first half of next year until interest rate reductions have a greater effect and the US election result is known and settled.’”
Cramer noted that the company expects an increase in demand in the future. However, he said that Allan pointed out that this anticipated surge may not materialize until the latter half of 2025, which Cramer feels is quite a long wait for current shareholders. Despite the stock’s decline of 13% on Tuesday, Cramer commented that this drop was an overreaction. He mentioned that while the stock did recover from its lowest point, ultimately closing down by $9, the extent of the decline still appeared excessive.
“Can’t say I’m very happy about this one. In fact, I’m furious about it, but I’m not ready to give up on it either, not with that great yield, not with that great brand or set of brands, and not when the Fed’s still poised to cut rates. This just happens to be that lag right now where we just don’t have rates impacting [the] bond market enough.”
Stanley Black & Decker (NYSE:SWK) is a prominent manufacturer specializing in hand tools, power tools, outdoor products, and related accessories. During the third quarter earnings call, Executive Vice President and CFO Patrick D. Hallinan stated that the company is on track to achieve an adjusted gross margin of approximately 30% for the full year.
Hallinan emphasized the ongoing commitment to improving supply chain efficiencies as part of a broader strategy aimed at reaching a target of over 35% adjusted gross margins. This focus is intended to support additional growth investments and improve overall earnings.
In light of current market conditions, Stanley Black & Decker (NYSE:SWK) management has revised its 2024 EPS guidance. The GAAP EPS is now projected to fall between $1.15 and $1.75, down from the previous range of $0.90 to $2.00. Adjusted EPS guidance has also been narrowed, with expectations set between $3.90 and $4.30, revised from $3.70 to $4.50. Additionally, the company has reiterated its forecast for free cash flow at approximately $650 million to $850 million.
6. Masco Corporation (NYSE:MAS)
Number of Hedge Fund Holders: 34
Cramer believes that Masco Corporation (NYSE:MAS) is doing better than pure-play home builders because it has exposure to multiple end markets.
“… What about Masco? This maker of fixtures, faucets, and cabinets turned in a comparatively better quarter. Their sales only fell a little bit shy of expectations, basically flat year-over-year. But their gross margins grew by 90 basis points that allowed them to put up 8% earnings growth and that matched the estimates.”
Cramer noted that the company revised its outlook, indicating a potential decline in decorative architectural products. He highlighted that this segment typically generates substantial gross margins, prompting the company to adjust its full-year revenue guidance downward. As a result, the forecast for earnings per share has also been slightly reduced, moving from $4.20 to $4.15 at the upper end.
“Not good, definitely not the end of the world, but you can’t have number cuts. According to management, their previously weak plumbing business has been improving though their do-it-yourself paint business remains challenged. Even though Masco shaved down its full-year forecast, they’re still feeling very confident because the company’s got so much exposure to the repair and remodel markets.
I think that’s why Masco doing better than a pure-play home builder like D.R. Horton. CEO, Keith Allman reiterated that the mid to long-term outlook for the repair and remodel market looks good… saying that improved home equity and home price appreciation plus higher consumer confidence and yes, a reduction in rates would help.”
Cramer pointed out that the expectation of a decrease in rates has not materialized. He emphasized the cautious approach home builders have taken over the years regarding the construction of new homes. This hesitance has resulted in the average existing home aging, leading to a greater need for renovations and repairs
“… Overall, the Masco quarter was just fine, not particularly strong, but also not bad like D.R. Horton, which is why this stock finished the day down only slightly. Hey listen, if you deliver in line, you don’t get crushed here.”
Masco Corporation (NYSE:MAS) is a leading company in the home improvement and building products sector, engaged in the design, manufacture, and distribution of a diverse range of products. As the company navigates the complexities of the current market, it forecasts ongoing challenges in demand for the remainder of the year. In light of this, the company has adjusted its expectations for 2024 adjusted EPS to a range of $4.05 to $4.15, down from an earlier forecast of $4.05 to $4.20.
Masco Corporation (NYSE:MAS) President and CEO Keith Allman emphasized the company’s commitment to operational efficiencies and cost-saving measures, indicating that these efforts will help improve operating margins throughout the year. Despite the short-term challenges, Allman expressed confidence in the long-term fundamentals of the repair and remodel market, asserting that the company is well-equipped to continue delivering value to shareholders.
