“This market needed a breather” from its big 10-month run, Cramer said during Mad Money, and on Tuesday “Washington provided a terrific pretext.”
News that the White House wants to tax banks was just what Wall Street needed to start a sell-off, one that took the Dow 37 points lower and cost the S&P 500 almost a full 1%.
The US economy can’t recover without the banks, Cramer said, and President Obama’s renewed focus on the sector – for unpaid Troubled Asset Relief Program loans and excessive compensation packages – makes its tenuous situation even more tenuous. Americans need access to credit, and taxes would further diminish an already reduced supply. Investors saw the potential danger and took the group down accordingly.
But make no mistake, Washington provided a bit of a convenient excuse to take profits. Let’s face it, the market can’t surge 3% a week without an eventual pullback. And that’s why the materials and agriculture companies declined right along with the banks. Still, Cramer emphasized that this was a typical pause in an otherwise bullish environment for stocks.
For one thing, he saw a silver lining in Alcoa’s more or less disappointing earnings report: “some pretty amazing cash flow numbers.” Cramer predicted a big 2010 for the company, saying a turn is coming in Alcoa’s key markets. He thinks AA is a buy.
Also, those materials stocks – the coppers, steels, and mining-equipment players – fell because investors feared a slowdown in China. But Cramer is OK with that. He’d rather see the country grow at a manageable pace instead of one so feverish that the government steps in. A complete shutdown by the Chinese Communist Party is a much worse possibility.
Today also saw a pullback in cornand oil, and Cramer’s all right with that, too. Inflation can kill a stock rally, so a softening in commodity prices is sometimes welcome.
Lastly, the Nasdaq, up 44% in 2009, also needed a rest. A continued move like that would too closely resemble the dot-com bust of 2000. Better for the index to pause now than end up giving all of those gains back.
Given this pro list for staying in stocks, what’s the game plan going forward? First of all, Cramer said, take some profits if you haven’t yet. Second, stay diversified. The food and drug companies rallied today, and that would have balanced out losses elsewhere in your portfolio. Cramer recommended Kimberly-Clark and its 4% dividend yield.
He’s still bullish on tech as well. While the Naz pulled back, no individual stock imploded. He said good news from Emulexand Cirrus Logic could mean that Hewlett-Packard , IBM and EMC will report strong earnings.
Lastly, stick with Mad Money’s favorite long-term investing themes, namely foreign stocks, gold, the mobile Internet, natural gas and counterterrorism. Each of these groups took a hit today, and that’s an opportunity to buy them on the cheap.
“The market’s throwing a sale,” Cramer said, and investors should take advantage.
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