Cramer: Let Loose the Growth Hounds

 | May 18, 2017 | 3:31 PM EDT
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On day two, they go for growth. That's what this market finds to its liking after yesterday's nasty pasting, and it's worth talking about why they are hunting for growth and where they are finding it and how it is affecting the averages.

First, you may be wondering, who is "they"? They are the money managers who, on the day after a selloff, like to take advantage of every dip and put money to work in the market because there have been so few price breaks for them to buy stocks they love at a discount.

Many home-gamers look at selloffs like yesterday's and they say, "Oh boy, here it comes, look out, the sky is falling." They start out bold but by the last wave of selling they are washed up, lifeless, like driftwood on some godforsaken beach.

Then they then say to themselves -- depending upon their political orientation -- that President Trump has made the market un-investible because of his freewheeling style or they say Trump's opponents have made things un-investible with their endless witch hunts.

Either way, Washington looks to them like an unhittable pitcher, and I am sure many simply took their bat and ball and went home, out of the market, just because they can't see a way out of the dilemma that the country finds itself in. For these forlorn stockholders, there is no future, just the here and now. They are the ones who sold Amazon (AMZN) multiple times in the 20 years since it came public, or left Facebook (FB) five years ago today after its fiasco of an initial public offering. They are, as I described them yesterday, your worst nightmare because when they act en masse at the same time that big hedge funds decide to short the market and speculators playing with borrowed money get sold out from under their positions, you get the kind of ugly cascading we saw in the last hour of trading. Yep, all three -- the broken-dreamed retail shareholders, the highly margined traders and the opportunistic hedge fund managers -- converged to create that miasma of selling that looked like the beginning of the real-deal decline so many have been waiting for.

But not everybody. Near the close of day one, we got buyers coming in looking for bond market equivalent stocks like Kimberly-Clark (KMB) and Clorox (CLX) , hunting for yield as interest rates on the 10-year Treasury -- the benchmark of all yields -- plummeted close to 2%. Those stocks were actually up yesterday, a not-uncommon trait of the first day of a selloff related to a slowing economy. And make no mistake about it, the selloff was only tangentially related to the actual legal troubles of Trump. It was a combination of what many think is the end of Trump's bid to pass laws that will accelerate the economy coupled with a lot of ugly retail sales numbers and a bond market that was flashing "look out, a recession is in the offing" that really caused the bang down.

Remember, whether you believe a slowdown or a recession is happening can be irrelevant versus what the multitrillion-dollar bond market is saying. We know better than to question the direction of bonds when they make vociferous moves like they did yesterday. They are saying this economy has hit a wall for a variety of reasons, including Trump's derailed agenda.

Yes, day two brings in an entirely new kind of buyer, not someone defensive looking for yield, but someone offensive looking for growth, growth that won't be impeded even if Washington's now a millstone around the economy's neck.

These are investors who know that if the bond market is signaling slowdown, they look for stocks that will have strength relative to the industrials or the consumer packaged goods or the financials.

These investors are like bloodhounds for growth. They are unleashed by a day like yesterday, and the stink of Washington does not throw them off the scent. In fact, they do not care about Washington as long as it doesn't get in the way of the stocks of companies that are down.

You need to know how these growth hounds think and act and work. When they see the stocks of the companies they love go down, they do not think something's wrong with those companies. They do not try to relate Trump's problems to those companies. They do not make a judgment that if the market's going down, their companies are in trouble.

They think their stocks are just collateral damage to the craziness of home-gamers panicking, margined speculators losing their stocks and their shirts and macro hedge funds making bets that Trump can bring the house down. The growth hounds don't even know there is a house and they just think the stocks are damaged, not the companies.

For them, yesterday was like some bizarre one-day mall sale thrown by one of the dozens of retailers that are now liquidating. They don't care what reasons are causing the market to go down, they are just making a judgment that, whatever the heck it is, their companies are not being impacted by it.

In fact, later in the day they began to ask themselves, "Is this all the bears can throw at us? Is this all they can muster? Well then, we better start buying even more aggressively because maybe there was nothing wrong to begin with." Plus, with Trump gloriously quiet for the trading day, I am sure some of them even are beginning to craft scenarios where there can be something good coming out of Washington, some potential tax reform, given Treasury Secretary Steve Mnuchin's presentation in front of Congress today. Good luck to that.

So who has growth without needing help from Washington? Do you even need to ask? How about the companies that dominate social, mobile and the cloud? How about Amazon? How about Apple (AAPL) ? How about Netflix (NFLX) ? How about Alphabet (GOOGL) ? How about the semiconductors that are in all sorts of cellphones? How about the semiconductor equipment companies? (Facebook, Apple and Alphabet are part of TheStreet's Action Alerts PLUS portfolio.) 

Yep, all the usual FANG and FANG-like suspects get taken into the mutual fund stationhouse and are booked as new positions.

Of course, the growth guys don't just limit themselves to FANG and friends. They seize on biotechs that have any sort of possible good news ahead, chiefly today Incyte (INCY) , which had some good reports from an anti-cancer drug used in conjunction with Merck's (MRK) Keytruda.

But they weren't the only place to go. We got a brand new growth name, one that you better get used to because people are going to start regarding it as one horse in a two-horse race: Walmart (WMT) . Yep, the giant discounter where 100 million people go to shop reported an upside surprise, and a nice chunk of it came from the online business. It never hurts when you have a major big-capitalization bricks-and-mortar retailer report a terrific number in part because of some stunning success with the internet.

Oh, and to be sure, the rest of the market picked up some steam when interest rates and oil both went up. Both broadened the rally to some of the trashed banking and oil stocks, although I wouldn't get your hopes up on either of those as their buyers are truly so skittish and always seem to have one foot out the door. Homebuilders got a second wind with rates as low as they are. I've spoken to two of them in the last 48 hours and they are swimming with orders.

Can it last?

The record of comebacks says yes. On day three, people typically turn to the industrials and consumer spending stocks, betting that things aren't as dire as they thought just two days ago.

But let me give you fair warning. The "day one buy bond market equivalents, day two buy growth, day three buy industrials" pattern could always run into an errant tweet that could start the play clock all over again.

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