Jim Cramer: My biggest worry with the Fed and why it has us in a holding pattern

Published Sun, Sep 18 20227:34 PM EDT

There's a broad perception that Federal Reserve Chairman Jerome Powell does not care one whit about corporate news. He's strictly a creature of broad government economic reports — the consumer price index, the producer price index, industrial production, retail sales and, of course, the nonfarm employment numbers. He also cares about what his fellow Fed people say. But for the most part, an earnings blowup is a tree falling in the woods: He's not around to hear it make a sound. If that's the case, then market participants should be selling anything that depends on the U.S. economy stabilizing here and forgetting about any company that needs acceleration. These growth stocks are simply casualties of the moment. If you want to own them, you must be prepared to take losses before you see any gains. The few growth names we have in the Charitable Trust, including tech, are particularly worrisome. Even if things just stabilize, that will mean earnings misses and price target cuts from levels when the world was a better place. But what if Powell isn't tone-deaf. What if he noticed that Nucor (NUE), the best steel maker in the world and the biggest in the U.S, just issued the equivalent of a profit warning and its sheet steel goes into a lot of construction. Or, holy cow, that big miss by FedEx (FDX) late Thursday was so weak that even if new CEO Raj Subramaniam was trying to reset expectations, we want to do our part to not bring on a worldwide recession. Or maybe Powell is seeing that housing starts and mortgage applications are unfathomably weak. Or more importantly, that the best homebuilders — including Lennar (LEN) and KB Home (KBH), which report earnings Wednesday after the Fed meeting — say things are definitely slowing. We know that retail, save Club holding Costco (COST), which also reports this week, has been miserable. We could go on and on with the chemicals and papers folding this week. I, for one, believe the man takes in everything, including all corporate reports of any real size. The question is: Does he want all this pain to happen? Does he want layoffs, which create a larger pool of workers instead of a larger work force? Does he want the so-called services economy to collapse with the goods economy? And, most importantly, can it unfold slowly or does it need to be done quickly? If it is the former, many stocks have already taken quite a beating. If it is the latter, that means more interest rate hikes quickly until that CPI is where he wants it and the the "Help Wanted" signs come down. In that case, nobody has enough cash, and tech is still very dangerous. I don't want to guess. I accept a 75-basis-point increase to the fed funds rate. I will let Powell tell us if we should be ready for another 75 in November, or if he is willing to wait to see what kind of damage another increase will cause. Keep in mind, it would be the third straight meeting of 75. The tightening cycle began with a 25 in March and a 50 in May, followed by the aforementioned 75s in June and July. (There was no meeting in August.) A 75-basis-point hike at next week's September meeting would be the prudent move, and Powell has prided himself on prudence since the fall of 2018 when he was rash in calling for lockstep moves. If he's open to seeing how another 75 plays out and people buy stocks, he may find himself on the defensive. Remember he needs people's assets to come down — home and portfolio values — so those who think they can retire or engage in not working have to come back to work. That's why I think my biggest fear is doing 75 and we're not done, because that means you can't own tech, even way down here at current levels, and industrials can only be owned if they have safe 4% dividend yields. Until Friday, the rise of the 2-year Treasury note told you that we are going to get a "we're not done" from the Fed. If that bond continues to climb toward 4% or breaches it, we don't even need Powell to tell us we aren't done raising rates yet. That's why, going out to San Francisco this week for Dreamforce, Club holding Salesforce 's (CRM) annual event, I am a little solemn. Many of the companies I will be seeing are international. Their numbers will be crushed by the strong U.S. dollar, Covid lockdowns in China and whatever the heck happens with Russia's war against Ukraine. FedEx told you that the U.S. has started to slow down. That will only continue. I want to look at people's face to face before we sell tech because I don't want to be in a position where we have to buy it back higher. But I will not hesitate to sacrifice once-sacred positions if it looks like Powell and the dollar and Covid and Russian President Vladimir Putin are all going to cause number cuts; the analyst community still has, in large part, price targets that are too high. Unless they come down, and they only seem to come down after the companies tell them they should, then we will have a very different earnings season. Companies that were able to raise prices and health-care names will work. Banks can do okay because defaults are not running higher. But anything tech or related to big spending will get hammered. If we get oversold, there will be no hurry to sell tech and industrials until we get the bounce. But buying them at these levels just doesn't seem like a good idea. Selling? Better. (See here for a full list of the stocks in Jim Cramer's Charitable Trust.) 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.

Federal Reserve Board Chairman Jerome Powell speaks during a news conference after a Federal Open Market Committee meeting on January 29, 2020 in Washington, DC.

Samuel Corum | Getty