We recently published a list of Jim Cramer’s Must-Watch List: 10 Stocks to Look After. In this article, we are going to take a look at where RH (NYSE:RH) stands against other Jim Cramer’s must-watch stocks.
In a recent episode of Mad Money, Jim Cramer explained that with the economy slowing down, the Federal Reserve is poised to ease its policies. He anticipates that the Fed will decide to cut rates, but the exact size of the cut, whether 25 or 50 basis points, remains uncertain. This upcoming decision is particularly important because it could significantly impact the market.
“At last, the economy has slowed enough that the Fed can take its foot off the brakes and step on the gas. That’s why we’re starting our game plan in the middle of next week when the Federal Reserve renders its verdict: 25 or 50 basis points. We don’t typically have a lot of drama in this business, but this one counts as a nail-biter because we really don’t know how big the rate cut will be. We just know they’re going to cut.”
Cramer highlighted Friday’s market performance, where the Dow gained 297 points, the S&P rose by 0.54%, and the Nasdaq increased by 0.65%. This strong performance marked the best two weeks of the year for the S&P and the Nasdaq. The rise in these indices suggests that the market might be expecting a substantial rate cut, potentially 50 basis points. Cramer noted that stocks sensitive to interest rates, especially those related to housing, surged in anticipation of this.
“Today’s rally saw the Dow gaining 297 points, the S&P advancing 0.54%, and the Nasdaq climbing 0.65%, capping off the best two weeks of the year for both the latter two indices. The S&P and the Nasdaq suggest the Fed might actually go for 50. That’s a double rate cut. I know this because the stocks most sensitive to interest rates, particularly housing and housing-related names, soared today.”
Using an analogy from NFL fantasy football, Cramer compared the market’s optimism to waiting for a major play from the Fed. Despite this, he personally bets on a 25 basis point cut rather than 50. He argues that while a larger cut could help the slowing economy, particularly affecting lower-income groups, it also risks reigniting inflation and causing panic. A 50 basis point cut might signal severe economic problems, which could lead to unnecessary anxiety.
“To use a little NFL fantasy football lingo, they soared presumably in anticipation of something huge from Jay Powell and company. All aboard! I still find myself betting on a quarter-point cut, though. It’s not that we don’t need a half-point cut, as the economy is slowing pretty quickly, especially for the lower-income cohort. However, I’ve always believed that the Fed should be measured when it cuts rates at this stage of the business cycle.
The biggest risk is that inflation might flare up again if you cut too much, and a 50 basis point cut all at once makes that a lot more likely. Plus, a double rate cut signals that something may be very wrong with the economy—something we don’t know about, something lurking. So going for 50 could inspire panic, and there’s simply no reason for the Fed to take that chance when it can simply hit us with a series of thoughtful 25 basis point cuts that neither reignite inflation nor cause panic.”
Cramer also cautioned that if the housing market rally continues, it could lead to a sell-off if only a 25 basis point cut is announced. He pointed out that traders are currently pricing in a higher chance of a 50 basis point cut, according to the CME Group’s FedWatch tool. If the Fed opts for a smaller cut, traders who bought in anticipation of a larger reduction might sell off their stocks, potentially causing market volatility.
“Now, if the housing rally continues at this pace, these stocks run the risk of being too hot to handle for a mere 25 basis point cut, and we’ll get a sell-off in response. Keep in mind how the CME Group’s FedWatch tool, which tracks interest rate expectations based on the Fed Funds Futures Market, indicates that traders are now pricing in a much higher probability of a double rate cut, currently at 45%. That’s much higher than it was a week ago. These traders could indeed be disappointed if the Fed decides to be more measured. They could be your enemy come Wednesday at 2 p.m. as they dump what they bought incorrectly, and that is what happens. That’s what traders do, they let the stocks go.”
Jim Cramer Sees Market Turnaround: This Week’s Gains Signal Future Upside
Finally, Jim Cramer believes that this coming week marks a significant moment for the market. He advises that if the market declines following a 25 basis point rate cut, investors should keep in mind the strong performance of this week. He suggests that this week’s gains are a sign of more positive developments to come as the Federal Reserve continues to ease monetary policy.
“When I look at next week, I can only conclude that we’re finally at the moment we’ve all been waiting for. So let me give you the bottom line: if we sell off on a 25 basis point rate cut, remember this phenomenal week, because there will be plenty more like it as the easing process continues and progresses.”
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A customer happily browsing aisles of high-end furniture in a large showroom.
RH (NYSE:RH)
Number of Hedge Fund Investors: 39
Jim Cramer discussed RH (NYSE:RH), formerly known as Restoration Hardware, noting its impressive 25% surge in a single day. Although recommending a stock with such a large daily gain isn’t his usual approach, Cramer made an exception for RH (NYSE:RH). He praised RH (NYSE:RH) for its remarkable performance and its leadership under Gary Friedman, who has transformed RH into a leading name in home furnishings.
“Here, it’s not my style to recommend a stock that’s up 25% in a single day, but if I were ever going to stick my neck out like that, I’d do it for RH, the old Restoration Hardware. It had a spectacular run today. This is an incredible retailer run by the iconic Gary Friedman, the impresario of what is suddenly the hottest store in home furnishings. How does he do it? Well, Gary’s a high roller when it comes to betting on himself…
Now, you may not want to buy the stock of anything that’s up 25% in one day, but everything related to housing is starting to take off. Just like RH, you have to buy early to get ahead of the turn when mortgage rates plummet, thanks to the Fed. As Gary told us in the conference call, I’m quoting: “We expect industry conditions to remain challenging, and as interest rates ease and the housing market begins to rebound, we expect our demand trends to accelerate throughout 2024 and 2025.””
RH (NYSE:RH) is an appealing investment due to its strategic efforts to become a leading luxury lifestyle brand. In Q2 2024, RH (NYSE:RH) reported a 3.6% increase in revenue to $829.66 million, surpassing expectations, and an EPS of $1.69, showing strong performance despite challenging market conditions. RH (NYSE:RH) is investing heavily in expanding its luxury offerings through Design Galleries and upscale experiences like restaurants and rooftop spaces, which set it apart from competitors.
RH (NYSE:RH)’s plans to open new luxury galleries in key markets, expand internationally, and explore luxury housing and travel further enhance its growth potential. Although recent stock fluctuations have been influenced by macroeconomic factors like the housing market and interest rates, analysts remain positive about RH (NYSE:RH)’s long-term prospects. RH (NYSE:RH)’s focus on high-end customer experiences and brand development makes it a strong candidate for future growth in the luxury home furnishings market.
Overall RH ranks 8th on our list of Jim Cramer’s must-watch stocks. While we acknowledge the potential of RH as an investment, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than RH but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
