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Stay away from this ‘forbidden city of stocks’


CNBC’s Jim Cramer said Tuesday that there is a shortage of buyable stocks on the market.

“When I say buyable, I mean stocks that’ll let you, kind of, sleep comfortably at night, or at least take a light nap,” the “Mad Money” host said.

Cramer reviewed which segments of the market money managers fear right now — the sectors he has framed, at least temporarily, as the “forbidden city of stocks.”

Financials

Stymied by the nearly-inverted yield curve, the financials sector — with the exception of financial technology names — has given investors nothing but pain, Cramer said. He highlighted that the group makes up 13% of the S&P 500.

A yield curve inversion occurs when the long-term Treasury bond rate is lower than the short-term bond rate. It’s harder for banks to make profits on loans in that environment, so money managers have shifted money into financial plays that have lower interest rate risk, such as PayPal and Square Inc.

“I think there’s too much value here to give up on the banks, even as I accept that this group is absolutely despised, and it’s been a sucker’s bet to wage that the hate will subside any time soon,” Cramer said.

Industrials

Industrial stocks, which account for 9% of the broad index, are tough to own at current levels because the industry takes a hit when U.S.-China trade tensions escalate. That explains why the sector rallied after the U.S. eased new restrictions on China’s Huawei on Tuesday, Cramer said. The Industrial Select Sector SPDR Fund, which tracks companies in the Industrial Select Sector Index, gained 1.18%.

“But given that the Chinese government seems to make new threats every night,” Cramer said, “and money managers are starting to hate [these stocks], there are only one or two exceptions.”

Retail

Retail stocks make up 10% of the S&P and amount to what Cramer called a “no-go zone.” Higher tariffs on Chinese imports could negatively impact company margins, he said.

“That’s why Walmart’s stock did nothing after the company reported a true blowout quarter — the best in nine years, ” he said. The “retail cohort’s just too hard.”

Health care

Health care companies account 15% of the market, and stocks in the sector take a blow every time Bernie Sanders, Elizabeth Warren and other Democratic presidential hopefuls push for a universal system, Cramer said.

On Monday, Cramer said former Vice President Joe Biden’s candidacy for the office could help buoy the industry. Many managed care companies benefit from the Affordable Care Act, also known as Obamacare, that was signed into law in 2010.

“You’ve gotta worry about what happens to the whole group if we get a Democratic sweep next year with one of the more left-wing candidates winning the White House,” Cramer said. “Still, I think fears are overblown as Democratic leadership in Congress is vociferously against. They hate single-payer, including [House Speaker] Nancy Pelosi.”

Communications and IT

As a collective, communications and information technology companies comprise about 30% of the index. Cramer said his so-called “Cloud Kings” and the FANG names — Facebook, Amazon, Netflix, and Google-parent Alphabet — are good here, but semiconductors have some headwinds to face.

Chipmakers were able to muster out a rally on Tuesday.

“However, I wouldn’t get your hopes up because the moment the Chinese Communist [Party] decides to retaliate is the moment you give up today’s gains in that gigantic conglomeration of stocks,” the host said.

Cramer went on to say that oil, airlines and housing stocks have all been risky. If the U.S. and China can come to a truce, the down and out groups — except the financials — will become loved, he said.

“So what do you do? I think you wait. Some would say we’re back in a bear market. I would say we’re in abeyance. Crummy place to be,” Cramer said. “But it could be a terrific place with one flick of President [Donald] Trump’s pen or a tweet, for that matter. “

WATCH: Cramer reviews the ‘forbidden city of stocks’

Disclosure: Cramer’s charitable trust owns shares of Facebook, Amazon, and Alphabet.

Questions for Cramer?
Call Cramer: 1-800-743-CNBC

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Questions, comments, suggestions for the “Mad Money” website? madcap@cnbc.com





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Business World

Acting FAA Chief Says Boeing Could Soon Submit Software Fix For 737 Max Planes


WASHINGTON, May 15 (Reuters) – Federal Aviation Administration acting chief Dan Elwell told lawmakers on Wednesday he expects Boeing Co to submit a software fix for the grounded 737 MAX involved in two fatal crashes for approval soon, and said he was concerned by the planemaker’s lengthy delay in disclosing a software anomaly.

At a congressional hearing, the chairman of the U.S. House Transportation and Infrastructure Committee told the FAA it must “get it right” in deciding when to allow the Boeing 737 MAX to fly again.

“The world is watching and the FAA and Boeing must get it right,” Democratic Representative Peter DeFazio said, adding the incidents have raised concerns about how the FAA certifies aircraft.

The Boeing 737 MAX plane was grounded worldwide in mid-March after two crashes in October and March killed 346 people.

Elwell said the agency expects to get the software upgrade and training update from Boeing in the “next week or so.” He said the FAA will only allow the plane to resume flights when it is “absolutely safe to do so … It’s important we get this right,” Elwell said.

Elwell said Boeing should not have waited 13 months to tell the FAA that it inadvertently made an alarm alerting pilots to a mismatch of flight data optional on the 737 MAX, instead of standard as on earlier 737s.

The body of a Boeing 737 MAX airplane is pictured at the Boeing Renton Factory in Renton, Washington on March 27, 2019.



The body of a Boeing 737 MAX airplane is pictured at the Boeing Renton Factory in Renton, Washington on March 27, 2019.

Elwell said he was “concerned” by the delay. “We’re going to look into that,” Elwell said. “Thirteen months is too long.”

The FAA is planning a May 23 meeting in Fort Worth, Texas, with air regulators from around the world to update them on the reviews. U.S. airlines have canceled flights as a result of the 737 MAX grounding into August.

Elwell said he hopes the international aviation community will work together. “My hope is that they have the confidence in our work and our analysis to make their ungrounding decisions if that’s where the discussion is as close to our decision as possible,” he said.

Democratic Representative Rick Larsen, who chairs the aviation subcommittee that held Wednesday’s hearing, said the FAA “has a credibility problem. The FAA needs to fix its credibility problem.”

Boeing has said its software upgrade and associated pilot training will add layers of protection to prevent erroneous data from triggering the system called MCAS.

The system activated in the Ethiopian Airlines crash in March and also during a separate Lion Air crash in Indonesia in October. Elwell said Boeing should have included more details on MCAS in its own manuals on the Boeing 737 MAX.

Committee leaders said they still expect to call Boeing to testify at a future hearing but expressed some frustration they have not yet received any documents from Boeing as they probe what went wrong with the 737 MAX.

The U.S. planemaker has been trying for weeks to dispel suggestions it made airlines pay for safety features after it emerged that an alert designed to show discrepancies in Angle of Attack readings from two sensors was optional on the 737 MAX.

Erroneous data from a sensor responsible for measuring the angle at which the wing slices through the air – known as the Angle of Attack – is suspected of triggering a flawed piece of software that pushed the plane downward in two recent crashes.

Boeing said last week it only discovered once deliveries of the 737 MAX had begun in 2017 that the so-called AOA Disagree alert was optional instead of standard as it had intended, but added that was not critical safety data.

Boeing said a Safety Review Board, convened after a fatal Lion Air crash in Indonesia last October, corroborated its prior conclusion that the alert was not necessary for the safe operation of commercial aircraft and could safely be tackled in a future system update.

Federal prosecutors, the Transportation Department’s inspector general and lawmakers are investigating the FAA’s certification of the 737 MAX 8 aircraft.

(Reporting by David Shepardson Additional reporting by Eric M. Johnson in Seattle Editing by Nick Zieminski and Chris Reese)





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