There isn’t enough money coming into this market. Funds will only flow to data center construction and a few other stocks. Even the most irrelevant “stories” in data centers, such as warehouse REITs and machinery stocks like Cummins and Dover, manage to survive if data center orders are healthy, but not much else. While the aerospace sector collapsed on expectations of a long war with Iran, the sector’s defense companies (RTX, GE Aerospace, Honeywell) performed badly. This shows that while the present remains strong, there is not enough money coming in to cushion the blow of an uncertain future. The most disconcerting aspect of this market is the disappearance of healthcare, especially pharmaceuticals. Just as anything peripherally related to data centers is a blessing, even anything directly related to pharmaceuticals is a nightmare. When I had Thermo Fisher CEO Mark Casper on “Mad Money” last week, I was stunned to see how much the stock had fallen despite his confidence and the medical device maker’s strong quarterly results. They were brutalized. Danaher is a similar story. This life sciences company has been such a complete disaster for so many years that a new nightmare every quarter is now the norm. It’s as if the company expects a bad outcome and is grateful for it. At least Thermo Fisher will come out and defend it. Danaher is hiding from, I don’t know, given that management seems to be very accepting of mediocrity. The old Danaher will either reshuffle the deck or have something other than healthcare to balance seller power. No more. But that may not matter now. Consider the case of Abbott Laboratories. This may seem unusual with stock prices hovering in the low $90s, but this medical device maker is a very good company. But the free fall is so obvious that I can see why people would want to avoid it even at such a low price. With healthcare out of the picture, what will it take to keep Abbott’s stock price from falling into the $80s? Same goes for Cardinal Health. I admit this club stock was a disaster, but I’m glad I didn’t buy it with a ton of points. If we look at Thursday’s quarter, we should get a decent average basis. This kind of decline usually portends a series of truly suboptimal results, but there’s no doubt that this pharmaceutical and medical supplies company actually beat expectations for the quarter. There’s nothing wrong with Cardinal that won’t be cured by more money flowing into the market. The scariest stock in my book is Johnson & Johnson. Here’s a stock that rose to the $200 mark with some impressive numbers. Then a second set of equally good numbers was delivered, but it meant nothing. Since then, the stock price has fallen about 5%. The problem now is the chart more than anything else. The chart is so ugly that it calls into question the entire dynamic breakout and makes a return to $180 the most likely next stepping stone. This would be a drop that would be unimaginable in other markets. But that seems to be what happens in this case, where the fundamentals are indistinguishable and P/E ratios of 19x and 16x P/E look the same. Consider the surprising nature of J&J’s opaque price-to-earnings ratio, one of the most distinctive companies on the planet, with a triple-A balance sheet, 18 potential blockbuster drugs, and an obsolete orthopedics division with a mediocre low multiple. However, there is a sense, however unlikely, that the latest measures could result in the repeal of key measures that appeared to be permanent. This is apocalyptic thinking, but until I have further evidence that my premise in this article is wrong, I’ll keep the average in my pocket. Nowadays, it is easy to limit yourself to just analyzing the flow of funds. It’s easy to be a talker. However, we need to think about how this could happen. There is no doubt that the market has woken up to the Fourth Industrial Revolution. As a disciple of Nvidia CEO Jensen Huang, and someone who is happy about it, I find this logic to be spot on. Why not stick with the stocks at the center of the AI boom, like Intel, Arm, AMD, Corning, and Qnity? Why move away from Texas Instruments and Lam Research? Amazon and Alphabet represent data center conglomerates. If you don’t own these, you’re just not a believer. Did you notice that Nvidia is not included? That’s because it’s not an option. That’s natural. As a side note, it seems strange that the prerequisites were so stagnant until last Friday. But sometimes this grizzled trader looks at his trades and realizes they are miserable. A large number of sellers exited the stock. I’m talking about a few sellers who undoubtedly owned well over 10 million shares. These sellers were living right in the $90 range, but were selling most of their stocks at the $200 level. If the stock price quickly rises from $200 to $208 without any news, that’s a sign that the sellers have been wiped out. What needs to be recognized is that the proceeds from these sold shares will be set aside or channeled back into other veins in the heart of the data center, perhaps distribution, connectivity, or GE Vernova’s Mac Daddy, a group that makes machines that convert natural gas into electricity. We also build and support nuclear reactors as a power source for building AI. There are only a few other nuclear dramas, most of them chimera-like. We need to know how rare such an injection of locked-down funds really is. It just doesn’t deviate. If he leaves the group, he’ll likely have to cash out. There is no net underneath. Normally, I wouldn’t have been so upset about this isolation of capital if it weren’t for what was waiting in the wings: SpaceX, OpenAI, and Anthropic’s initial public offerings. The first company, SpaceX, is sure to become a magnet strong enough to pull funds from the S&P 500 and acquire it. Nvidia will certainly suffer from both S&P 500 outflows as well as investors selling its own stock. The excess payout to SpaceX would be large enough to merit an investigation into how the IPO process works. My hope is that the Anthropic-OpenAI merger is delayed either because of OpenAI’s strange ownership structure (a non-profit organization controls a for-profit company) or because Anthropic doesn’t seem to be short on cash. This needs to happen for the market to continue to progress. If those two are put aside, you can look into SpaceX. Otherwise, you will end up in a market dead end, but you will still not be able to reshuffle the deck. Can the market really withstand concentration? Yes, it is possible if there are not many new companies entering the market. But it feels very similar to the period from January 1999 to April 2000. Back then, the only thing worth investing in was the Internet, and companies like Johnson & Johnson and Bristol-Myers had very similar shrinking P/E ratios. The return to health care stocks from the Internet that April was driven not by the usual culprit, the bond market, but by the IPO market, where bankers made more than 300 worthless offerings. The supply killed the bull. Therefore, as long as there are not too many IPOs scheduled and only SpaceX launches of the big three take place, we will be able to get through this period without any shocking events happening. However, there is one moment that can make the difference between victory and defeat. That’s Wednesday for Alphabet, Amazon, Meta, and Microsoft (Thursday for Apple). Only Nvidia has a bigger impact on the market than these megacaps. If even two of these stocks can get through next week with value, investing in the Fourth Industrial Revolution will remain in vogue for some time to come. (See here for a complete list of Jim Cramer Charitable Trust stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, you will receive trade alerts before Jim makes a trade. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in his charitable trust’s portfolio. If Jim talks about a stock on CNBC TV, he will issue a trade alert and then wait 72 hours before executing the trade. The above investment club information is subject to our Terms of Use and Privacy Policy, along with our disclaimer. No fiduciary duties or obligations exist or arise from your receipt of information provided in connection with the Investment Club. No specific results or benefits are guaranteed.
