The stock market is struggling with several challenges that it can’t really grasp correctly. They are mostly behind the scenes and are working to destabilize some sectors that worked for so long — and are now failing the market at the wrong time. That’s because they are happening all at once. Let’s go over them. The first worry is China. We have always been able to count on world’s second-largest economy for certain things that were clearly very visible and positive. Take Nike (NKE) and, to a lesser extent, Starbucks (SBUX). These two are some of the more reliable senior growth stocks in the market. Nike, under CEO John Donahoe, continued its total dominance that it had under previous leaders Mark Parker and Phil Knight. It’s in a class by itself. Sure, there have always been challengers. At times we were worried about Adidas. Then there was Under Armour (UA), which went right at Nike’s endorsements by challenging them at the high school and college level and at Dick’s Sporting Goods (DKS) and Foot Locker (FL). They all tried and failed. The latest challenger is Hoka, a brand that had struggled and is owned by Deckers (DECK), and On, which has a potent non-workout business to go with its running sneakers. None of this mattered because Nike owned China. It has a great deal with the country’s education ministry to keep Chinese youths in shape. It doesn’t have any real competition. They are dominant. Same thing in Europe, just a very strong No. 1. While others are making inroads when it comes to shoes and apparel, Nike has destroyed Under Armour and will not let these other interlopers get a toehold. Witness Nike’s return to Foot Locker as a force, even if that’s the redoubtable Mary Dillon getting them back in with the latest and greatest. Suddenly, China seems tentative. A contract between an American company in China — whether it be with the government or a company — is now worthless because the Chinese will come up something to break the contract. Contracts mean nothing when the Chinese government is this mercurial. If Nike loses China, it will just be another shoe company. That’s the big reason why it can’t get its footing: a very visible company that seems hobbled and must be avoided. We own Starbucks. We like its conversion to cold beverages. The coffee giant drifted technologically in the last years of former CEO Kevin Johnson and the second round of Howard Schultz as CEO. Schultz stepped down from the board last week and is no longer going to be able to second-guess the CEO. This is very important as we have seen it at Starbucks with Schultz and at Disney with CEO Bob Iger at and former CEO Robert Chapek — although Johnson and Chapek never did seem to win over the troops. I really, really like Starbucks CEO Laxman Narasimhan and we are going to see a very strong executive make decisions now that Howard is gone. But as with Nike, we really fear the Chinese government and how fickle it can be. We know it needs to increase youth employment and Starbucks is a champion at that. But we have seen a willingness for the government to cut its nose off to spite its face. That means the for-China-by-China ethos just may not work. What a terrific prelude to whatever is going on with China and Apple (AAPL). First, I don’t think the Chinese even know. As Secretary of Commerce Gina Raimondo, rumored to be a vice presidential candidate, has told us: the Chinese are arbitrary and capricious. Could you have been more arbitrary and capricious to let the word out that Apple phones aren’t allowed in Chinese government or government-related employees? That’s a huge slice of the workforce. But then Apple is doing so well at retail stores, it throws you off. Notice, however, the stock has not come back one bit. How can it when the Chinese government has targeted it? That means a lower price-to-earnings multiple for a key stock. Of course, that means many other companies are impacted because of the Apple ecosystem. You can see the power that the weakness has over companies like Micron (MU), Skyworks (SWKS) and Qualcomm (QCOM), even with its big modem win. Apple weakness just casts a pall over everything. The market has effectively lost three hugely visible stocks — Nike, Starbucks and Apple — and I don’t even want to bother considering what it means for the rest of the companies that have business with China. For example, only 5-10% of Caterpillar’s business is in China, but investors have mistakenly been selling CAT shares on that percent. Fortunately, so much of infrastructure is the United States, which more than makes up for it. The second concern is the auto sector and the entire ecosystem around it. The United Auto Workers targeted all three Detroit automakers — General Motors (GM), Chrysler-owner Stellantis (STLA) and Club name Ford (F) — with walkouts for the first time in its history. That means trouble for the steels, the rails, intermodal freight shipping and the myriad dealer systems that will run out of product more quickly for certain models. The profitability of the autos could be sacrificed and we have no idea what that means for the U.S.’s transition to electronic vehicles. President Joe Biden is so heavily union that the Big 3 are not going to get a good settlement no matter what they do. I know it is just targeted and Ford’s F-150 EV is still working, but this UAW leader, Shawn Fain, seems more likely to want to expand the strike than to settle. He makes it sounds like his demands are just about money. Of course it’s about making the union much bigger and powerful. That takes out three companies abilities’ to be a positive for the economy, which they were. We will soon be in unfathomable territory because the country has seen the power of unions and doesn’t like it. The third headwind is weakness in the cloud. That was takeaway from Oracle’s (ORCL) recent quarter even though the real weakness was with subsidiary Cerner, not the cloud. I can’t believe how investors just didn’t get that and instead focused on a softening in the cloud infrastructure. Hopefully, CEO Safra Catz can dispense with this weakness at its OracleCloud World conference this week. But Salesforce (CRM) CEO Marc Benioff couldn’t do it at Salesforce’s conference last week, which was all about artificial intelligence, still alive and well despite perceived weakness in the cloud. All eyes on Oracle then. The fourth challenge is housing. When shares of home construction giant Lennar (LEN) went down on an admitted weak quarter due to the doubling in mortgage rates, we saw a decline in everything that goes into a home. That included really poor action in Home Depot (HD) and Lowe’s (LOW). It’s been such a long time since we didn’t have housing as a headwind that I can’t even remember how weak it can make the economy. We have had weakness in the banks on fears of more regulation and that’s only getting worse. The investment banks are doing well because of a return to M & A and IPOs. But shares of regional banks still act terribly whether they had good numbers are not. We are seeing a tightening of credit across the board, which will eventually weaken small business. Not yet though. Finally, we have to be worried if we are losing travel. We have seen the airlines put up some miserable numbers and we can’t expect that to reverse itself. Business travel is down post-Covid and the “long on money short on time” thesis seems to have morphed into “short on time and short on money” moment where only Marriott (MAR) and Booking Holdings (BKNG) have held up. These are too many negative themes to go into the second half of September. On the other hand, we have gotten halfway through September and we have not had more than garden variety profit-taking. Who wants to leave the party when the Federal Reserve is almost done raising interest rates? But is it? That consumer price index reading last week was a “reset the clock” number after after two good reports that were going the Fed’s way. The August CPI registered its biggest monthly increase this year , boosted by higher energy prices. If oil gets embedded in the system, the next CPI will be too hot, too. So what do we have to look for? Oil simply has to come down. The strike must be settled. The Fed must have language and a press conference that indicates only one or two more tightenings. We need Oracle to get back on track. And we need Darden (DRI), FedEx (FDX) and KB Home (KBH) to put up great numbers this week and terrific forecasts. That’s a lot that has to happen in one week. Probably too much. We will see when we have our next Monthly Meeting with club members on Thursday. In the meantime, we have to play for time and hope the S & P Oscillator gets so negative that all of these issues are discounted. Again, it’s probably much to ask. Let’s do some buying in areas that presume a recovery, just not one this week. Reasonable but not good enough to expect a strong week — without the wins outlined here. (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 . 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With the General Motors world headquarters in the background, United Auto Workers members attend a solidarity rally as the UAW strikes the Big Three automakers on September 15, 2023 in Detroit, Michigan.
Bill Pugliano | Getty Images
The stock market is struggling with several challenges that it can’t really grasp correctly. They are mostly behind the scenes and are working to destabilize some sectors that worked for so long — and are now failing the market at the wrong time. That’s because they are happening all at once.
Let’s go over them.