CNBC's Jim Cramer explained why money managers move into Big Tech stocks when the market grows concerned about rising inflation and a potential interest rate hike. Subscribe to CNBC Pro to access the full episode of Mad Money:
Money managers began moving into tech stocks as a hedge against inflation and Fed rate hikes, CNBC’s Jim Cramer said Tuesday.
Rising raw costs led to a 5.4% increase in inflation last month, the biggest jump in consumer prices in more than a decade.
That triggered concern among some investors that the Federal Reserve could move to raise interest rates sooner than planned to address inflation, Cramer said.
“If you want one industry that’s immune to both inflation and a Fed-induced slowdown, well it’s big-cap tech,” the “Mad Money” host said after the market closed.
“Hyper-growth tech stocks are actually what works best during a slowdown.”
Despite the inflation number, the market barely reacted because Wall Street expected to see a jump in the consumer price index, Cramer said. The major U.S. averages all pulled back from record closes the day prior, with the Dow Jones Industrial Average falling more than 100 points.
Investors are also keeping an eye on the start of earnings season.
Many companies can’t afford to pass their higher costs onto the consumer because people will rebel. By the same token, not everyone can handle a sudden rise in interest rates, which is what many money managers are betting on. Cramer argued that’s unlikely.
“I don’t think [Fed Chair Jerome] Powell’s going to change his stance, but there are a lot of money managers who disagree,” he said. “When we see an [inflation] number like this, they sell a lot of other things and they buy tech.”
It explains a breakout in trading in big tech names like Google-parent Alphabet and Microsoft, the software giant. Their businesses aren’t tailored to changes in inflation, including the rise in gas, plastics, packaging and other prices, Cramer said.
Alphabet shares advanced 0.29% to close at $2,546.83, while Microsoft settled at $280.98, up 1.3% in the session.
Apple, which makes a range of devices, can be negatively affected by higher material costs. But the brand sells and those costs can be assumed by its customers, Cramer said. Apple stock moved 0.8% to $145.64 Tuesday.
Cramer said a stock like PepsiCo is an exception to the rule in the consumer packaged goods space. While the company will be saddled with higher input costs, including packaging and shipping, it can pass it on to consumers in the form of higher prices for drinks, chips and other products, he said.
Pepsi shares rallied 2.3% to close at $152.96 after the company posted a strong earnings report and raised its outlook.
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Jim Cramer: How Inflation Affects Stocks of Alphabet, Microsoft, and Apple Inflation is a term that can strike fear in the hearts of many investors. It refers to the general increase in prices of goods and services over time and can have a profound impact on the economy as a whole. As inflation rises, the purchasing power of the dollar decreases, which can lead to higher interest rates and slower economic growth. But what does all this mean for some of the biggest companies in the world, such as Alphabet, Microsoft, and Apple? Well, according to renowned financial expert Jim Cramer, the effects of inflation on these tech giants are worth considering. Alphabet, the parent company of Google, is known for its dominance in the online advertising space. Its revenue largely relies on businesses paying for ads, so if inflation were to rise and companies faced higher costs in other areas of their operations, they might cut back on advertising budgets. This could potentially lead to a slowdown in Alphabet's growth and impact its stock price. However, Cramer argues that Google's advertising business is so essential for companies to reach potential customers that even in times of economic uncertainty, ad spending may remain relatively stable. Microsoft, on the other hand, has a more diversified business model, spanning software, cloud computing, gaming, and hardware. While some of these areas may be affected by inflation, Cramer suggests that Microsoft's subscription-based offerings, such as Office 365 and Azure cloud services, provide a consistent revenue stream that can help mitigate any negative impact. Additionally, as digital transformation accelerates across various industries, companies are likely to continue investing in technology solutions, benefiting Microsoft in the long run. Lastly, Cramer looks at Apple, a company that not only sells a range of electronic devices but also generates a significant portion of its revenue from services such as Apple Music, the App Store, and Apple Pay. These services, being more resilient to economic fluctuations, provide Apple with stable income, even during periods of inflation. Additionally, Apple has a loyal customer base that eagerly awaits new products, which can create a steady demand irrespective of broader economic conditions. However, Cramer believes that a potential risk for Apple lies in the supply chain disruptions caused by inflation, as rising costs for labor and raw materials could impact its profitability. Overall, while inflation can have an impact on the stocks of Alphabet, Microsoft, and Apple, Cramer's analysis suggests that these tech giants have strategies and offerings that can potentially mitigate the effects. Nonetheless, investors should still closely monitor inflation trends and their potential effects on the companies they hold in their portfolios. As with any investment decision, it's crucial to consider not only the short-term impacts of inflation but also the long-term prospects of these industry-leading companies. https://inflationprotection.org/the-impact-of-inflation-on-alphabet-microsoft-and-apple-stocks-insights-from-jim-cramer/?feed_id=135528&_unique_id=6500fc220cdb9 #Inflation #Retirement #GoldIRA #Wealth #Investing #CNBC #cramer #invest #investing #investmentstrategy #JimCramer #kramer #lightninground #MadMoney #Retirement #stockmarket #WallStreet #InvestDuringInflation #CNBC #cramer #invest #investing #investmentstrategy #JimCramer #kramer #lightninground #MadMoney #Retirement #stockmarket #WallStreet
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