Finance

Jim Cramer
Scott Mlyn | CNBC

It’s been a bloody few weeks for once high-flying tech stocks and CNBC’s Jim Cramer believes there is still a bit more carnage to go for some parts of the market.
“Tomorrow you got to do some selling…if you own stocks that are selling at a multiple to sales…those have had it,” the “Mad Money” host said on a CNBC Special Report on Monday evening, following a volatile session for stocks.

Cramer is referring specifically to the stocks trading at high price-to-sales valuations that have little or no current profits that were being bid up during the pandemic for their future earnings potential. These names are now faltering in the face of a Federal Reserve pivot that could lead to higher rates. Cramer says you have to separate those stocks from the companies that actually make products and sell services that are generating profits today.
The major averages whipsawed on Monday, earning back steep losses to ultimately close in the green. However, its been a sea of red for stocks this month, specifically the technology-focused Nasdaq Composite, which is in correction territory.

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At one point on Monday, the index was just a few percentage points away from reaching a bear market.
Cramer used Lemonade and Cloudflare as example of stocks he finds challenging to value.
He said only when a major software company steps into buy one of these faltering high multiple tech shares would the bottom be in for these kind of names.
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Investors may be playing with fire.
According to Morgan Stanley’s Mike Wilson, the S&P 500 is vulnerable to a 10% plunge despite Monday’s late buying binge. He warns investors are dangerously downplaying a collision between a tightening Federal Reserve and slowing growth.

“This type of action is just not comforting. I don’t think anybody is going home feeling like they’ve got this thing nailed even if they bought the lows,” the firm’s chief U.S. equity strategist and chief investment officer told CNBC’s “Fast Money.”
Wall Street hasn’t seen an intraday reversal this large since the 2008 financial crisis. During Monday’s session, the Nasdaq bounced back from a 4% drop while the Dow was off 3.25% at its low. At one point, the blue chip index was down 1,015 points. But by the close, the Nasdaq, Dow and S&P 500 were all in positive territory.
Wilson, the market’s biggest bear, expects the painful drop will happen within the next three to four weeks. He anticipates challenging earnings reports and guidance will give investors a wake-up call regarding slowing growth.
“I need something below 4,000 to get really constructive,” said Wilson. “I do think that’ll happen.”
His strategy: Double down on defensive trades ahead of the predicted setback. He warns virtually every S&P 500 group will see more trouble due to frothiness and is making decisions on a stock by stock basis.

“We’re not making a big bet on cyclicals here like we were a year ago because growth is decelerating. People got a little too excited on these cyclical parts of the market, and we think that’s wrong-footed,” he said. “There’s going to be a payback in demand this year. We do think margins are a potential issue.”
Wilson doubts the Federal Reserve’s two-day policy meeting which kicks of Tuesday will provide meaningful comfort to investors.
“They’re not going to back off because the market sold off a bit here,” Wilson said. “The data really hasn’t been soft enough for them to stop the tightening process.”
On Monday, the S&P 500 closed at 4410.13, 8.5% below the index’s all-time high hit on Jan. 4. Wilson’s year-end price-target is 4,400.
CNBC’s Robert Hum contributed to this report.
Disclaimer

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AS STOCK-TRADING screens turned red again on January 25th, one trader was heard to quip that at least some things are falling in price. The day’s fall in share prices took the cumulative loss on the S&P 500 index towards 10% for this year already, only three weeks in. The year-to-date decline in the NASDAQ composite, a tech-heavy index, is well into the double digits. It has been a rotten start to 2022 for stock investors. And the day-to-day numbers for the broad indices do not even do full justice to the turmoil in the markets.Much of the drama has taken place beneath the surface, at the stock or sector level. Technology shares in particular have fared badly. The FTSE 100 index of British stocks, which is light on technology and heavy on oil and commodity firms, has been more resilient than American indices (see chart). Prices have swung wildly during the trading day. Late last week New York’s markets opened to modest rises in the main indices, only for prices to tumble as the days ended. At the start of this week, the intraday lurches became wider. On Monday, for instance, New York’s trading day began with a big sell-off, which then intensified. At one point the NASDAQ composite was down by almost 5%. Then stocks suddenly rallied. The NASDAQ finished the day up by 0.6%. The S&P 500 index posted a gain of 0.3%, despite being down by 4% at its lowest ebb. Few were fooled by the late rally. Almost everybody, it seems, was braced for more red screens the next day. They duly arrived.Behind all this action is a market that is always somewhat forward-looking. And what has the market now to look forward to? Quite a lot of trouble, it would seem. In six months’ time, the Federal Reserve will probably have raised interest rates twice, with more to come. The easy money that has supported stock prices will be firmly on the way out. Corporate profits will be squeezed at two ends—from decelerating revenue growth (in a slowing economy) and from rising wage costs. There are, in short, more reasons to be alarmed than to be hopeful. No wonder markets are so jumpy.Start with a factor that is never far from investors’ thoughts: the Fed. After spending much of 2021 playing down any immediate need for tighter money, the Fed has changed its tune quite abruptly. It sounded a more hawkish note at its monetary-policy meeting in December. The minutes of that meeting, which were published on January 5th, made clear to investors that rates would soon be going up. The reasons for the volte face are obvious enough. Inflation is uncomfortably high. It can no longer be dismissed as transitory. And the labour market is fast running out of spare capacity.In response to that change in tone, markets have quickly priced in more rapid policy tightening. The rise in long-term real interest rates has been notably sharp. Yields on ten-year Treasury inflation-protected securities (TIPS), which were around -1% at the start of the year, are now -0.6%. Stockmarkets have had to adjust to this. Higher long-term rates reduce the present value of future corporate cashflows, making shares less valuable. The effect is especially marked for the shares of tech companies, which are priced for profit growth long into the future. Hence the violence of the NASDAQ’s decline.The Fed is not the only concern. Much of the run-up in markets last year was predicated on a stronger economy and handsome revenues and profits. Extraordinary growth in America was fuelled by low interest rates, pent-up demand and a bumper $1.9trn fiscal-stimulus package. Such impulses are fading. Economists at JPMorgan Chase, a bank, forecast that GDP growth in America will fall from 5.7% in 2021 to 3.7% this year and 2.5% in 2023. There are already some signs that a slowdown is under way. Activity in America’s service industries has fallen to an 18-month low, according to the latest survey of purchasing managers. Retail sales slumped in December. Consumer confidence is low. Some of this can be put down to the Omicron wave. But it may also reflect an ebbing in underlying demand.As investors consider the demand outlook for the coming months, there is a lot less to excite them. Profits will be squeezed by a slowing economy, and thus slowing revenue, but also by rising costs. Higher oil and commodity prices add to raw-material costs. A bigger headache is labour. The tight jobs market is bidding up the salaries of increasingly scarce workers. “There is real wage inflation everywhere,” lamented David Solomon, boss of Goldman Sachs, on a call to investors last week. His bank had just reported a blowout year for profits, but the nerves of investors were jangled by the one-third increase in Goldman’s wage bill last year. Other businesses that also rely more on brainpower than physical capital will feel the pinch, providing yet another reason why tech shares, especially those of fledgling firms, have come under such selling pressure.A third big concern is valuation. Stocks in America look terrifyingly expensive. A measure popularised by Robert Shiller of Yale University puts America’s stock prices at a steep 36 times their earnings, adjusted for the business cycle. That is above the reading before the 1929 stockmarket crash (though still lower than the valuation reached at the peak of the dotcom boom of the late 1990s). A reckoning was due, especially for expensive-looking, unproven businesses. ARK Innovation, an exchange-traded fund that invests in young tech firms, has become the shorthand for the more speculative end of the market. It is down by 55% from its peak. There is also greater scepticism about the more established—or at least more familiar—names, such as Netflix and Zoom, which did well from the stay-at-home economy, but have suffered recently. “In short”, notes Michael Wilson of Morgan Stanley, a bank, “the froth is coming out of an equity market that simply got too extended on valuation.”A concern is that the current selling will feed on itself and cause a rout. Is there anything that might improve the market mood? There are some bits of good news that investors might eventually cling to. Omicron may prove to be the last wave of the pandemic. As it fades, so might the labour bottlenecks behind some of the recent inflation. Reopening can happen in earnest. There are tentative signs that China’s economy is bottoming out. Many emerging markets have already been through a painful adjustment. The EU’s “Next Generation” fund, which will disburse €750bn ($880bn) to member states, still has a lot of fiscal fuel in the tank. A lot of the better news comes from outside America, though. It may not do much for the NASDAQ. And it is hard to feel bullish about Europe with Russian troops amassed on Ukraine’s border.For now, though, the focus is firmly on the Fed, which concludes its rate-setting meeting on January 26th. Investors nursing hefty losses might hope for a less hawkish tone from Jerome Powell, the central bank’s chairman, and colleagues. Is that likely? The Fed would have reason to worry if the corporate-bond market had come badly unstuck, because it is a vital conduit for funding. But corporate-bond spreads have been fairly stable. Falling stock prices by themselves are—or should be—less of a concern to policymakers. Indeed a market correction might even suit the Fed’s purposes, if it brings the people who have retired early on their stockmarket gains back into work. Or perhaps Mr Powell will blink. We won’t have to wait long to find out. For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

Traders work on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters

Short sellers are reaping huge profits this year, as the stock market’s brutal bloodbath fuel their bearish bets.
The short-selling cohort has gained $114 billion in January mark-to-market profits as of Friday’s close, up 11.6% for the year, according to data from S3 Partners’ Ihor Dusaniwsky.

The sell-off in the new year has been severe. The S&P 500 briefly dipped into correction territory Monday, falling more than 10% from its record high. Technology shares bore the brunt of the washout, with the Nasdaq Composite dropping about 12% in January, now sitting almost 15% below its all-time high. The tech-heavy benchmark pulled off a stunning turnaround Monday, however, closing in the green after losing as much as 4.9%.

The stock rout was triggered by a potential policy shift from the Federal Reserve. The central bank has signaled interest rate hikes this year as well as a tapering of asset purchases and a balance sheet reduction. The potential action would mark an aggressive hawkish tilt for the Fed after nearly two years of ultra-easy monetary policy to support the economy from the pandemic.
“While longs have been getting trounced, short sellers have seen widespread profitable trades in this market wide downturn with 79% of all short side money producing profitable returns in January,” said Dusaniwsky, the firm’s managing director of predictive analytics.
Short sellers seek to profit by anticipating declines in the value of securities. A short seller borrows shares of a stock and sells these borrowed shares to buyers willing to pay the market price. As the stock price falls, the trader would buy it back for less money, pocketing the difference.
The most profitable short bet this year has been against Tesla, which experienced a near 12% decline. Short sellers betting against the electric vehicle company have gained $2.3 billion in mark-to-market profits as of Friday, according to S3.
Bets against Netflix have also been particular lucrative. Shares of the streaming giant have fallen a whopping 35% this year after the company admitted that streaming competition is eating into its subscriber growth. The drastic sell-off has translated into a $1.6 billion gain for short-sellers.

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U.S. stock index futures were little changed in overnight trading Monday, after a wildly volatile session that saw the Dow erase a more than 1,100 point decline to finish the day in positive territory.
Futures contracts tied to the Dow Jones Industrial Average gained 19 points. S&P 500 futures were flat, while Nasdaq 100 futures dipped 0.1%.

During regular trading, the Dow gained 99 points, or 0.3%, and snapped a six-day losing streak. At the lows of the day, the 30-stock benchmark shed 3.25%. The S&P 500 advanced 0.28% for its first positive session in five, after losing nearly 4% earlier in the day. At one point the benchmark index fell into correction territory, dropping 10% from its Jan. 3 record close.
The Nasdaq Composite rose 0.6%, reversing a 4.9% decline from earlier in the day. The comeback was the first time the tech-heavy index clawed back a 4% loss to end higher since 2008.
“The buyers are coming in to buy the dip here,” Lindsey Bell, Ally’s chief money and markets strategist, said Monday on CNBC’s “Closing Bell.” “Things looked a little bit over-stretched to the oversold side, so it’s not surprising. But that doesn’t mean we are going to be in the clear … there’s a lot that we have going on this week,” she said
Ultimately, Bell said volatility is here to stay until the Fed begins hiking rates.
The Federal Reserve Open Market Committee will begin its two-day meeting on Tuesday, with an interest rate decision slated for Wednesday at 2 p.m. ET. The Fed is not expected to begin hiking rates just yet, so investors will be watching for an indication of when the Fed will begin hiking rates, and the pace of those hikes.

“We’re in what I call the triple threat of … rapidly rising rates, and the market has been working overtime, as have all of the algorithms, to try to figure out what that means, and what that pace means for valuations and global equities,” UBS Private Wealth Management’s Alli McCartney told CNBC Monday.
“Today is capitulation,” she said, before adding that while volatility is here to stay, the market narrative is beginning to shift towards one of strong earnings growth supporting stocks.

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Monday’s volatility follows the S&P 500’s worst week since the pandemic took hold in March 2020. Both the Dow and S&P 500 are also on track for their worst month since March 2020.
Spooked by rising rates, investors have rotated out of high-growth areas of the market in favor of safer bets. The yield on the benchmark 10-year Treasury note stood at 1.769% on Monday.
The tech-heavy Nasdaq Composite has been hit especially hard and fell into correction territory last week. The index is down 11.4% so far this year, underperforming the S&P and Dow, which have declined 7.5% and 5.4%, respectively.
“Considering expectations for solid gains in the economy and corporate profits…we’re not convinced the fundamentals support any near-term technical weakness beyond the classic 10.0% correction,” said John Lynch, chief investment officer for Comerica Wealth Management. “Yet a review of the technical and fundamental backdrops suggests a bottom is forming,” he added.
A number of earnings reports are on deck for Tuesday before the market opens, including Johnson & Johnson, 3M, General Electric, American Express and Verizon.
Microsoft will report earnings after the market closes, along with Texas Instruments, among other companies.

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Mario Tama | Getty Images News | Getty Images

Check out the companies making headlines in midday trading.
Netflix — Shares of the streaming giant fell 2.6% after Jefferies downgraded the stock to hold from buy and said the company may need to shift its focus to video games. The shares plunged Friday as several analysts issued downgrades and price target cuts after Netflix reported disappointing subscriber guidance.

ARK Innovation — Shares of Cathie Wood’s flagship exchange-traded fund fell 7% in midday trading as growth names continued their downward spiral before ending the day 2.8% higher. Coinbase, one of the fund’s largest holdings, fell slightly. Tesla fell 1.4% and Unity Software lost more than 4% before finishing 3.8% higher. Exact Sciences slid more than 6% but ended the day slightly higher. Twilio fell 5% before bouncing to 2.8% higher.
Coinbase — The cryptocurrency exchange operator’s shares tumbled more than 9% as the price of bitcoin fell to its lowest point since July as part of the continued sell-off in risk assets. Microstrategy, one of the biggest corporate buyers of bitcoin, also plunged more than 7%.
Wynn Resorts — The casino and resort stock fell nearly 1% following a New York Post report that Wynn is looking to divest its online sports-betting unit for $500 million, a significant discount to the $3 billion valuation that has been floated in the past year.
Snap — Shares of the social media stock fell 1% after Wedbush downgraded Snap to “neutral” from “outperform.” The Wall Street firm said it sees various headwinds impacting Snap’s revenue growth.
General Motors — The auto manufacturer saw shares slide 1.2% ahead of announcements the company plans to make Tuesday about major electric vehicle investments. GM plans to invest $6.5 billion and create as many as 4,000 jobs at two plants in Michigan, according to AP.

Boeing — Shares of the aircraft maker fell 5% before pulling back, after the company announced it invested another $450 million in the flying-taxi developer Wisk. Boeing said the Wisk passenger vehicle, set for certification in around 2028, would be the first autonomous passenger-carrying vehicle to be certified in the United States.
Kohl’s — Kohl’s shares soared by more than 36% following news the company is fielding takeover offers from at least two suitors. Starboard-backed Acacia Research is offering $64 per share for the retailer, while private-equity firm Sycamore Partners has reached out with a potential offer of at least $65 per share, CNBC has learned. Kohl’s shares closed Friday at $46.84.
Fox Corp — Fox gained 3.7% after UBS upgraded the stock to a buy from neutral on its on its sports-betting potential and said it sees more than 30% potential upside to the stock. It also pointed to Fox’s strong position among pay-TV providers.
Peloton — The at-home fitness company’s stock gained 9.7% after activist investor Blackwells Capital called on the company to fire CEO John Foley and seek a sale of the company
 — CNBC’s Maggie Fitzgerald contributed reporting

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Traders work on the floor of the New York Stock Exchange (NYSE) on February 5, 2018 in New York City.
Getty Images

It was a wild day for stocks on Monday, adding to the market’s shaky start to 2022.
The Dow Jones Industrial Average fell as much as 1,000 points, before coming back to close about 100 points higher. The S&P 500 was off by nearly 4% at its session low but managed to eke out a small gain. The Nasdaq Composite rose 0.6% after falling as much as 4.9%.

Despite the late-day jumps, both the Dow and S&P 500 are on pace for their worst month since March 2020, when the market fell into turmoil amid the pandemic. The Nasdaq, meanwhile, is still headed for its biggest one-month loss since October 2008.

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What’s behind the market’s weak start to the year?

Though some areas of the market considered more expensive or speculative began to struggle in November, the broader market took a big step back during the first week of January following increasing hints from the Federal Reserve that the central bank will take aggressive action to slow down the jump in consumer prices.
“Over the past month, the Federal Reserve (Fed) has made it increasingly clear that it is serious about fighting that inflation,” the Wells Fargo Investment Institute said in a note to clients on Jan. 19.
The central bank has signaled that it plans to stop its asset purchases, hike rates and possibly reduce its balance sheet, starting in March. Government bond yields have surged in preparation for the rate increases, with the U.S. 10-year Treasury rising more than 40 basis points this year alone to nearly 1.9% at its high point after finishing last year just above 1.5%. (1 basis point equals 0.01%.)
Investors are now expecting four rate hikes this year, with some officials warning that more may be needed, after most Wall Street pros expected just one or two hikes a few months ago.

“The Dec. 15 minutes that came out on Jan. 5, they were a shock to investors,” Ed Yardeni, founder of Yardeni Research, said on CNBC’s “Halftime Report” on Monday.
The Fed will give its latest update on Wednesday. While it’s unlikely to raise rates at this meeting, market experts believe the central bank will stick with its plan tighten financial conditions despite the market decline given the high level of inflation.
Concerns about persistent inflation, supply chain disruptions from new Covid variants and the potential for conflict in Ukraine are other factors that have weighed on the risk appetites for investors.

Tech leads the way down

Technology stocks with high valuations got hit first and are continuing to get hit.
Last week, the technology-focused Nasdaq Composite fell into correction territory, marking a 10% drop from its November 2021 record close. At one point on Monday, the index was just a few percentage points away from reaching a bear market.

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Climbing bond rates typically disproportionally punish growth stocks as their future earnings growth become less attractive as rates rise. The growth expectations for tech stocks have also weakened as Wall Street analysts have gotten a better sense of what the post-pandemic economy may look like.
“Since the end of 3Q21, 2022 earnings estimates for [the Nasdaq 100] fell 0.8%, while estimates for the S&P 500 rose 1.9%, indicating weaker fundamentals for Growth stocks relative to the overall market,” Bank of America equity and quant strategist Savita Subramanian said in a note on Monday.
Many of the biggest stocks in the market are tech names, so their declines can have a major impact on market averages. Now, the selling pressure is feeding on itself as investors dump risk assets, dragging every stock sector but energy down in January.
The cryptocurrency market has been hit hard as well. The price of bitcoin fell briefly below $34,000 on Monday morning, bringing its year-to-date losses to roughly 30%. Since its record high in November, the largest cryptocurrency has lost about 50%.

Arrows pointing outwards

Bitcoin has lost roughly 50% since its all-time high in November.

The price of ethereum has seen a similar decline over that time period.

Bright spots

To be sure, the health of the economy is looking good. The unemployment rate has fallen to 3.9% after a record year of nonfarm payrolls growth. Other metrics of economic growth are positive, even if they show a slower recovery than in 2021.
Earnings season is also turning out to be a strong one, despite some disappointing reports from high-profile firms. More than 74% of S&P 500 companies that have reported results have topped Wall Street’s earnings expectations, according to FactSet.
Covid-19 cases are also coming down. After exploding to staggering new highs amid the spread of the highly transmissible omicron variant, Covid-19 cases started to come down in New York State over the last two weeks, according to Gov. Kathy Hochul, leading to hope that other areas of the U.S. can see a similarly quick wave.
-CNBC’s Michael Bloom contributed to this report.

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“Look, my view of it is evolving,” Blankfein said. “I can’t predict the future, but I think it’s a big thing to be able to predict the present, like, ‘What is happening?’ And I look at the crypto, and it is happening.”
By “happening,” Blankfein means the ecosystem around cryptocurrencies has matured in the past year, he said.
“It’s lost a lot of value, but at a point where it’s trillions of dollars of value contributing to it and the whole ecosystem growing around it,” he said.

Former Goldman Sachs Chairman and CEO Lloyd Blankfein said his view of cryptocurrencies has evolved after digital assets attracted trillions of dollars in value and a rapidly growing ecosystem.
On Monday, Blankfein was asked by CNBC’s Andrew Ross Sorkin on “Squawk Box” for his view on the nascent asset class, who noted that the former banker has voiced skepticism in the past.

“Look, my view of it is evolving,” Blankfein said. “I can’t predict the future, but I think it’s a big thing to be able to predict the present, like, ‘What is happening?’ And I look at the crypto, and it is happening.”
By “happening,” Blankfein means the ecosystem around cryptocurrencies has matured in the past year, he explained. Traditional financial companies including Goldman have begun offering clients ways to buy, trade and custody digital currencies, and a parallel universe of decentralized finance protocols has emerged so holders can lend out and earn yield on their coins.
Cryptocurrencies have been selling off for weeks as expectations of rising interest rates hit riskier assets. The total market cap of cryptocurrencies fell below $2 trillion last week after reaching a high of $3.1 trillion in November.
“It’s lost a lot of value, but at a point where it’s trillions of dollars of value contributing to it and whole ecosystems are growing around it,” he said. “Of course, we have the benefits of instantaneous transfer and reduction of credit risk and all the benefits of blockchain.”
In the past, Blankfein has criticized bitcoin as a store of value and said that regulators should be “hyperventilating” over its rise.

“I may be skeptical, but I’m also pragmatic about it,” Blankfein said Monday. “And so guess what? I would certainly want to have an oar in that water.”
In the wide-ranging interview, Blankfein discussed how uncertainty over inflation has caused bearishness throughout markets in recent weeks. He also said that banks trade at an “unbelievably low multiple” and that some of the best investments are made in declining markets.

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