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Why the “bad news is good news” trend didn’t work with Monday’s data
Every weekday, CNBC Investing Club with Jim Cramer launches Homestretch – a no-nonsense afternoon update, just in time for the last hour of trading on Wall Street. (We are no longer recording audio so we can make this new written resource available to members as quickly as possible.) Industrials lead the decline: Stocks fell early in the week and into the trading month of June – giving back some of the gains of Friday. gains – as investors worry about economic growth. The manufacturing sector took a hit after the Institute for Supply Management’s manufacturing PMI index fell 0.5 percentage points to 48.7% and contracted for the second month in a row. A reading below 50% indicates a contraction. The data also showed a contraction in new orders and backlogs, a sign of weakening demand. The survey of respondents in almost all sectors was also quite pessimistic. More recently, the slowdown in economic data, or “brown shoots”, was seen positively by the market. This idea works under the idea that a cooling economy could help control inflation and allow the Federal Reserve to begin lowering interest rates. But there needs to be a balance: we don’t want to see the economy weaken too much, too quickly. There’s a lot of data coming in this week that could shape the central bank’s thinking heading into its next rate decision at the June 11-12 FOMC meeting. Healthy pullback: The AI infrastructure construction trade is taking a hit for the second session in a row. Shares of Dell, Super Micro, Vertiv and Club Eaton fell. Utilities that meet the growing power demands of AI data centers, such as Vistra and Constellation Energy Corp, were also lower. Dell’s quarter last week started off in a selloff, with many pointing out that its server backlog grew just over 30% quarter over quarter to $3.8 billion. We joke about “just” because in itself a 30% sequential increase is an impressive feat. But Dell’s order backlog didn’t live up to the expectations, also known as the “whisper number,” of the most optimistic investors. As a close technology partner to Nvidia, Dell plays a critical role in the AI ecosystem and its backlog shows the strength of demand. And the fact that Dell’s numbers don’t live up to the extreme hype isn’t a sign that AI spending is slowing down. This is a case where expectations were exceeded, creating a healthy setback that brings expectations more in line with reality. Interestingly, Nvidia is bucking the trend of these beneficiaries of AI development, rising more than 3% on Monday and returning to its all-time high. After hearing from CEO Jensen Huang over the weekend, we are reminded again that “the more you buy, the more you save” when it comes to its accelerated computing platform, and that the biggest beneficiary of AI is still… Nvidia. Next up: It’s a quiet week for corporate earnings. Bath & Body Works and Ferguson report Tuesday morning before the opening bell. (See a complete list of Jim Cramer’s Charitable Trust holdings here.) As a subscriber to CNBC Investing Club with Jim Cramer, you’ll 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 talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH OUR LEGAL NOTICE. NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, AS A RESULT OF THE RECEIPT OF ANY INFORMATION PROVIDED IN RELATION TO THE INVESTOR CLUB. NO SPECIFIC RESULTS OR PROFIT IS GUARANTEED.
Truck transmissions sit on pallets at the Eaton Corp. factory. in San Luis Potosi, Mexico, on Wednesday, May 27, 2020.
Maurício Palos | Bloomberg | Getty Images
Every weekday, CNBC Investing Club with Jim Cramer releases Homestretch – a no-nonsense afternoon update, just in time for the last hour of trading on Wall Street. (We are no longer recording audio, so we can make this new written resource available to members as soon as possible.)