You want this kind of decline. It's enough already. We can't just keep going up on the same news over and over. Yes, the Fed might cut, if things get softer. Yes, Chinese President Xi Jinping could agree with President Donald Trump on a deal. Indeed, we have had a plethora of deals.
But the endless rally needs fuel, and without it you end up with what you got Tuesday, a soggy session that reminds you stocks can go down, too.
What constitutes a soggy session?
First, the cloud kings -- all the stocks that have do enterprise software in the cloud -- were crushed Tuesday, as they should be. Monday Salesforce.com (CRM) decided to buy Tableau Software (DATA) for a huge premium in a stock deal. Stupidly -- as I pointed out last night -- all of the cloud stocks jumped up as if there were buyers lurking everywhere.
How'd they do Tuesday? ServiceNow (NOW) , the enterprise software company that automates workflow, saw its stock get pummeled by around nine bucks. The stock of Workday (WDAY) , which just reported a terrific quarter, shed a similar amount. Adobe's (ADBE) stock plummeted around $7. Coupa Software (COUP) , the excellent cloud procurement company that announced fantastic numbers, saw its stock shed $5. Twilio (TWLO) , Okta (OKTA) , Zscaler (ZS) and Zendesk (ZEN) , all amazing companies, had stocks that were hammered.
All of these moves make sense. Monday's froth involved the idea that if Tableau Software got bought, any of these stocks could be bought.
That's pretty fatuous. In fact, I think that the Salesforce buy was particularly one-off. I will be speaking to Tableau chief executive Adam Selipsky on Mad Money about the deal with Marc Benioff's Salesforce and what it means to both companies and their stakeholders. But it simply made no sense that all of these stocks of companies that aid digitization should have rallied. I said it would be ugly. It was ugly.
Second, Beyond Meat (BYND) . I am not going to throw around sausages today, but I proved the point Monday night that this stock had gotten too hot. Tuesday morning J.P. Morgan agreed with my analysis and said that after its roughly 600% increase, the stock couldn't be justified to still buy. I think that's pretty sound logic.
Now let's understand that like in the case of the cloud slaughter, Beyond Meat is an excellent company. There is tremendous demand for the product. Right now it has the market more or less to its own, because no one has stepped up in scale to beat them. I liked the stock up until the company reported, but, even as I am a total devotee, I just couldn't continue to get behind it. This cooling off period is most necessary. The stock's gone up too far, too fast, and now it must cool down.
Third, we have seen these financial technology stocks rally endlessly, and I like them all so much. For example, I spent a day last week interviewing executives as part of a corporate governance conference I ran, and I had the privilege to interview Dan Schulman, the chief executive from PayPal (PYPL) . I was convinced, once again, that the opportunities here are immense and the products, whether they be payments or Venmo, are still early on in their development. That makes me want to buy the stock on any pullback. But there hasn't been one. It's become almost nauseating if you wanted to get in to buy this stock, because it just won't come down. It's emblematic of the entire group. I think fintech has to take a breather, and it is doing so.
Fourth, something I didn't count on: The stock of the companies involved in the two mergers that caused so much hoopla is being annihilated. I understand that Salesforce and Tableau would go down, as many investors think that Marc Benioff overpaid for Tableau. I disagree, but I get why they're getting knocked around. But I think the world of the United Technologies (UTX) and Raytheon (RTN) deal and I am aghast that both stocks are being laid to waste.
I believe that United Technologies is worth much more than it is selling for, and it should be bought. But Tuesday I heard creeping worries that this could end up being something like Dow and Dupont, which took so long to close that it turned out to be disastrous. It is true that, like DowDuPont (DD) we have no idea what the future will look like and how much tariffs might hurt United Technologies. I think if you are patient, you will be rewarded. I feel very alone, though, as the market's verdict is pretty negative, especially on Raytheon's stock, which is down $9. That's an egregious decline, but the company and the stock are now in merger limbo.
The Raytheon decline bled into the whole sector, and the stocks of Northrop Grumman (NOC) , General Dynamics (GD) and Lockheed Martin (LMT) were just laid to waste. The stocks in this sector did act like there was going to be a deal in the group. They were all bid up. You could feel the froth go flat in this cohort.
Speaking of deals, hopes for the Sprint (S) and T-Mobile (TMUS) deal were given a jolt when attorneys general from nine states and the District of Columbia decided to try to block it. Given that the feds seem to be learning toward approval, this was a true-below and both stocks went down, but Sprint really got hit. I think that buying T-Mobile still makes sense, because if the deal goes through, it goes higher. But I wonder if it won't go up, anyway.
Understand that if we had some definitive news, a rate cut plan by the Fed, a whiff of a trade deal with China, you could see that perhaps there would be better action. As I said Tuesday morning on "Squawk on the Street," the market is fine and the economy is fine. Not great. Not bad. I could call that Goldilocks, but I think that isn't what I am talking about. What I am saying is, like my old partner Larry Kudlow said on CNBC: There is not much inflation and the economy is robust.
I would add that if the trade war with China gets even hotter, I believe that Chair of the Federal Reserve Jay Powell will have the economy's back. Not the stock market, but the economy. That's an example of what is fine about this market.
Why am I not more bullish? Are you kidding? After this colossal move that we have had, the bull is fatigued. The froth is being tamped down. The stocks that have been too hot are cooling.
That's exactly what needs to happen for this market to recharge. There's nothing really wrong. Still, the president could slap tariffs on any country he feels like, given his view that they raise money for the treasury. The bad news: He's the wild card. The good news? Things are fine, we just need lower prices to justify more buying.
Salesforce.com, Twilio, DowDuPont and Lockheed Martin are holdings in Jim Cramer's Action Alerts PLUS charitable trust.
