Cramer's Investing Club: Stocks sink this week ahead of Big Tech earnings next

Published Fri, Jan 21 20224:40 PM ESTUpdated Tue, Jan 25 20226:52 AM EST

Markets continued to take a beating this week as investors appeared to be pricing in even more hawkish Federal Reserve action throughout the year than originally feared. Fortunately, we will get an update next week, when Fed Chairman Jerome Powell hosts the FOMC press conference on Wednesday, at 2:30 p.m. ET, a half hour after the central bank's policy statement for its two-day January meeting. Taking a quick peek at the CME Fed Watch Tool , the market is currently factoring in four quarter-point interest rate hikes as the most likely outcome by the end of the year. However, more telling is how those expectations have changed over the past month. Expectations for three hikes this year declined from 30.2% to 22.7% over the past month, while expectations for four hikes jumped from 20.5% to 32% and expectations for five hikes jumped from 8.2% a month ago to 24.3% on Friday. With that in mind, it's also worth remembering that nothing has actually happened yet other than the Fed striking a more hawkish tone. That change in tone has achieved two things. First, the Fed now has cover, the market believes they are ready and willing to clamp down should the inflationary data keep going up. That's because they've signaled that they will be able to do so should the data support it without catching anyone off guard. They'll have telegraphed the move months in advance. Second, the Fed got the market to do at least some of the work for them as the 10-year Treasury yield has finally started to advance. Remember, the 10-year Treasury serves many purposes, for starters it is the so- called risk free-asset that potential returns on actual risk-assets is considered against. Treasury yields are also used as a benchmark for other debt assets such as corporate bonds, auto loans or mortgage rates. So, once the 10-year yield starts moving to the upside, those other securities tend to rise as well and can therefore serve as a natural "pumping of the brakes" on the economy. Take home prices for example, when rates are rock bottom, home prices are free to rise to the sky. However, with the 10-year yield advancing, mortgage rates start to advance; when mortgage rates advance, the monthly payments (a combination of the interest rate and the amount of money borrowed, the latter of which rises with list prices) become more expensive (think less affordable) and serves to slow the rate of home price appreciation. Finally, now that we have covered discounted cash flow analysis, price-to-earnings multiples, and the importance of rate expectations over the past three weeks, lets remember the single most important thing as longer-term investors, the one thing we have to fall back on when markets want go down seemingly endlessly: company fundamentals. While interest rates and valuation multiples fluctuate and investors have a tendency to overshoot on both the upside and the downside when attempting to price in future market environments, the one thing we can do when the "Wall Street fashion show" turns against us is dig in and re-analyze the underlying fundamentals. We do this with industry checks and by listening to investor presentations and earnings calls from both the companies we own and their peers. This is what we are doing now as we put money to work, we are looking for stocks of company's where the price has come down (the numerator in a P/E valuation model) but the underlying fundamentals and therefore earnings power (the denominator) remain intact. When you find a company like this it means the stock actually is getting cheaper. So just as you do when your favorite store has a sale, you should be looking to buy, not sell because the item you are getting is just as good as it was a month ago but it's selling at a lower valuation — i.e, you are paying less per dollar of earnings. This is not the case when the fundamentals are deteriorating, in that case the price may come down but if the earnings power declines the stock doesn't get any cheaper. If anything, it may actually be getting more expensive. That is why we are so focused on the stocks of companies that "do things and make stuff" because the companies with real earnings power become more attractive as the stocks decline and that provides us the conviction we need to stick with our discipline, even if it means holding our nose to buy. Here's a quick look at some of the broader market measures we like to keep an eye on: The U.S. dollar index was holding as the mid-95 level. Gold was about flat on the week, trading at around the $1,800 level. WTI crude prices were holding in the mid-$80s per barrel. The yield on the 10-year Treasury yield was holding at around 1.75% level. Earnings and the economy Within the portfolio, we received earnings from Morgan Stanley and Union Pacific . While earnings season and Fed rate hike expectations are certainly what shaped this week's action, we also got a few key macroeconomic updates to consider. Wednesday December housing starts : +1.4% MoM to a seasonally adjusted annual rate (SAAR) of 1.702 million vs. 1.65 million expected; +2.5% YoY December building Permits: +9.1% MoM to a SAAR of 1.873 million vs. 1.7 million expected; +6.5% YoY Thursday Weekly initial jobless claims : 286,000 vs. 225,000 estimate; four-week moving average for claims: 231,000 (+20,000 vs. prior week) December Existing Home Sales : -4.6% MoM to a SAAR of 6.18 million vs. -0.5% expected; -7.1% YoY What we are watching ahead Fourth-quarter earnings will really ramp up next week. Within the portfolio, we will hear from Microsoft will report Tuesday after the closing bell; from Boeing and Abbott Labs on Wednesday before the opening bell; from Mastercard , Nucor and Danaher on Thursday before the opening bell; from Apple on Thursday after the closing bell; and from Chevron on Friday before the opening bell. As a reminder, we will provide our full analysis of every earnings report for the companies held in the portfolio. Here are some other reports we will be watching. Monday Open: Philips (PHG), Halliburton (HAL), Bank of Hawaii (BOH), Community Bank (CBU) Close: IBM (IBM), Steel Dynamics (STLD), Logitech (LOGI), Crane (CR), Brown & Brown (BRO), Zions Bancorp (ZION) Tuesday Open: Ericsson (ERIC), United Micro (UMC), Verizon (VZ), Johnson & Johnson (JNJ), General Electric (GE), Archer-Daniels (ADM), Lockheed Martin (LMT), Raytheon Technologies (RTX), American Express (AXP), 3M (MMM), NextEra Energy (NEE) Close: Capital One (COF), Texas Instruments (TXN), Canadian National Rail (CNI), Silgan Holdings (SLGN) Wednesday Open: AT & T (T), Anthem (ANTM), Progressive (PGR), General Dynamics (GD), Freeport-McMoRan (FCX), Kimberly-Clark (KMB), Automatic Data (ADP), Corning (GLW), Norfolk Southern (NSC) Close: Intel (INTC), Tesla (TSLA), Flex (FLEX), Whirlpool (WHR), Avnet (AVT), Lam Research (LRCX), Ameriprise (AMP), Seagate (STX), United Rentals (URI), Levi Strauss (LEVI), Crown Castle (CCI), Las Vegas Sands (LVS), Xilinx (XLNX) Thursday Open: Comcast (CMCSA), which owns CNBC, Valero Energy (VLO), HCA (HCA), Dow (DOW), SAP (SAP), McDonald's (MCD), International Paper (IP), Altria (MO), Textron (TXT), Tractor Supply (TSCO Close: Mondelez (MDLZ), Visa (V), US Steel (X), Western Digital (WDC), Stryker (SYK), KLA Corp (KLAC), Celanese (CE), Canadian Pacific (CP) Friday Open: Phillips 66 (PSX), Charter Communications (CHTR), Caterpillar (CAT), LyondellBasell (LYB), Colgate-Palmolive (CL), VF Corp (VFC) Close: None On the macroeconomic front, we'll be keeping an eye on the geopolitical sphere as well as for the following releases (all times ET). Monday 8:30 Chicago Fed national activity index 9:45 Markit PMI manufacturing Tuesday 9:00 FHFA home price index 9:00 S & P/Case-Shiller 10:00 Consumer confidence 10:00 Richmond Fed index Wednesday 8:30 Wholesale inventories 10:00 New home sales 2:00 FOMC meeting 2:30 Powell press conference Thursday 8:30 Initial jobless claims, continuing claims 8:30 Durable orders 8:30 GDP 10:00 Pending home sales index 11:00 Kansas City Fed manufacturing index Friday 08:30 ECI civilian workers 08:30 Personal consumption expenditure 08:30 Personal income 10:00 Michigan consumer sentiment (Jim Cramer's Charitable Trust is long MS, UNP, MSFT, BA, ABT, MA, NUE, DHR, AAPL and CVX. See here for a full list of the stocks.) 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 . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Traders on the floor of the NYSE, Jan. 21, 2022.

Source: NYSE