We're trimming tech stocks and an automaker because it never pays to fight the Fed

Published Wed, Apr 6 20229:25 AM EDTUpdated Wed, Apr 6 202211:29 AM EDT

We're making a number of trades Wednesday morning — selling four shares of Amazon (AMZN) at roughly $3,245.73 each, 910 shares of Ford (F) at roughly $15.56 each, 200 shares of Marvell Technology (MRVL) at roughly $66.90 each, and 50 shares of Microsoft (MSFT) at roughly $305 each. Following Wednesday's trades, the Charitable Trust will own 29 shares of Amazon, 6,000 shares of Ford, 1,200 shares of Marvell Technology, and 275 shares of Microsoft. Amazon will move from a 3.22% to 2.84% weighting in the portfolio. Ford will move from 3.25% to 2.83%. Marvell Technology will move from 2.84% to 2.45% Microsoft will move from 3% to 2.55%. Following up on Tuesday's trades , we are making several more trims in the portfolio Wednesday morning, targeting technology, semiconductors, and an economically sensitive automaker due to our concerns about an aggressively hawkish Federal Reserve. On Tuesday, Fed Governor Lael Brainard said it's of "paramount importance to get inflation down" and shrink the balance sheet at "a rapid pace." Brainard's comments were notable not just because she was previously a dove, but also because she recognizes that the U.S. economy has the kind of persistent inflation that's most damaging for regular people. In a separate speech , San Francisco Fed President Mary Daly made a comment that really stuck out to us. She said inflation is as harmful as not having a job. With the labor market very tight and unemployment down to 3.6%, what this means to us is that the Fed believes it has the cover to slow the economy down to stamp out inflation, without regard to asset prices, including the stock market. The commentary reminds us a lot like October 2018, when the Fed signaled that they wanted to raise interest rates in lockstep fashion. Using that as our analog, the stocks that were hit the hardest from October 2018 to the Christmas Eve bottom that year were the high multiple tech names in the Nasdaq , semiconductor stocks, and small caps. Even with our cash position sitting around the highest levels in quite some time, we still see the need to take additional action and lock in profits to protect against market downside. We're selling Amazon and Microsoft in technology, locking in gains of about 120% and 275%, respectively. We're selling Ford, locking in a gain of 68%, and downgrading our rating to a 2 due to our concern that a Fed-mandated slowdown in the economy could hurt auto sales. We are also selling some Marvell Technology, locking in a huge gain of about 177% on shares bought in August 2019, due to our concerns about the semiconductors in a Fed-mandated slowdown. We are downgrading our MRVL rating to a 2, and we are also downgrading the rest of our semiconductor positions, Nvidia (NVDA), Advanced Micro Devices (AMD), and Qualcomm (QCOM), to 2 ratings as well. We understand how frustrated you may be that we recommended semis a few days ago, and now our stance has changed. But what you must understand is that in the past 24 hours, there has been a radical switch by the Fed. The biggest dove has become the big hawk. We cannot ignore this information and stand idle, and try to fight the Fed. We must be tactical in short-term, switch to 2018 mode, protect capital, and get more conservative. The groups with the most downside risk are what we are trimming. But know this: This selloff will eventually create fantastic opportunities to buy the semis because the long-term secular themes are not going away. We cannot stress this point enough. We will promptly notify Club members when we believe the time to buy has come. Lastly, we want to reiterate that we are not making a sell everything call Wednesday. We're simply trimming a handful of tech and economically sensitive positions as we have grown more conservative about the market. Separately, we continue to believe in our drug stocks like AbbVie (ABBV), Eli Lilly (LLY) and Bausch Health Companies (BHC) because they're immune to a Fed-driven recession. We're also still looking to buy oils on dips because those companies have great free cash flow and the global supply issues are not going away any time soon. (Jim Cramer's Charitable Trust is long AMZN, F, MRVL, MSFT, NVDA, AMD, QCOM, ABBV, LLY and BHC. 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.

Pedestrians pass in front of the New York Stock Exchange in New York, on Tuesday, March 15, 2022.

Michael Nagle | Bloomberg | Getty Images

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