- The coronavirus outbreak and easing global growth is pushing money managers to rotate out of cyclical stocks to secular ones, particularly the cloud sector, CNBC's Jim Cramer said.
- "Sometimes stocks fit a theme so perfectly that they can ignite the averages without any other companies really doing anything at all. That's what happened today," the "Mad Money" host said.
- "If you own them, don't get greedy — you might want to ring the register" on part of your position, "but you've definitely got to hold on to something," he said.
Money managers are buying cloud and software stocks to grapple with easing global growth, CNBC's Jim Cramer said Monday.
The cloud stocks helped carry the major indexes higher during the trading session — the Dow Jones Industrial rose about 174 points, the S&P 500 advanced 0.73% and the Nasdaq Composite rose 1.13% — as investors continue to worry how the novel coronavirus could impact business.
"Sometimes stocks fit a theme so perfectly that they can ignite the averages without any other companies really doing anything at all. That's what happened today," the "Mad Money" host said. "If you own them, don't get greedy — you might want to ring the register" on part of your position, "but you've definitely got to hold on to something."
Interest rates in the bond market are on a decline, which is one indicator that investors are stashing money in safe places to hedge against a weakening economy. Cramer, who has a list of fast-growing technology stocks dubbed "Cloud Kings," said the big funds are rotating money to cloud stocks because they can keep growing, despite economic contraction. Investors tend to buy up the stock of companies that are riding secular trends to avoid the impact of short-term trends.
As China already faces a potential slowdown in its economy, one economist worries that the coronavirus outbreak, which originated in Hubei province, could stunt growth in the country to less than 2%. That could have major implications on the global economy, which is levered in many ways to China. China has the world's second-largest economy.
"Well, at this point, we've just gotten through the bulk of earnings season, so portfolio managers can take stock of the fastest growth trends that they saw during earnings season," Cramer said. "The software-as-a-service companies had a bountiful quarter, and this is a uniquely American industry [with] very little if almost no exposure to China."
Growth in the cloud industry is powered by the digital transformation, where companies are updating their operations with technology and other service tools that can cut costs, improve interactions with customers and modernize their experiences.
Pointing to the cloud businesses in Microsoft, Amazon and Alphabet subsidiary Google, Cramer said "we actually saw an acceleration in the cloud this quarter." Microsoft Azure grew 62% in the three-month period ended December, while Google Cloud grew by 52% and Amazon Web Services grew 34% year over year in the same quarter.
"Of course, we don't know how long this newfound love will last. If China manages to contain the coronavirus, you can expect money to rotate right back out of these names and into more cyclical stocks, including the semiconductor names with major" exposure to China, Cramer said.
Disclosure: Cramer's charitable trust owns shares of Amazon, Alphabet, Microsoft, Salesforce, Twilio and Nvidia.