Another Strong Day for Tech Stocks on Tuesday
The markets are generally positive on Tuesday, with the Dow Jones Industrial Average trending flat, the S&P 500 making a late move up, and the tech-heavy Nasdaq pushing higher once again.
Tech
The recent rally in tech has not just been limited to the beloved FAANG group, which includes Amazon (AMZN) (our largest position), and long-term holdings of Apple (AAPL) , Facebook FB and Alphabet GOOGL . Instead, it has been very broad-based across many different industries, including the semiconductors where we believe we own the best long-term growth story with Nvidia (NVDA) , the payment processors where PayPal (PYPL) has been the leader in fostering the digital economy, and most recently, with the addition of a "cloud king" in Salesforce.com (CRM) , which we believe has terrific long-term growth prospects that we wrote about in our Alert here.
In news, yesterday Apple CEO Tim Cook delivered his keynote speech at the company's annual WorldWide Developer's Conference (WWDC). Unlike last year when Apple unveiled the HomePod, this time around there were no hardware announcements at the event. Rather, the focus was on Apple's software and the new user experiences it is creating. Some of the top highlights were the increased performance speeds and capabilities of iOS12, new updates to Augmented Reality via ARKit 2.0, blocked trackers and improved privacy on Safari, an expanded Groupchat that will allow for up to 32 participants on Facetime, and fitness-oriented software updates to the Apple Watch.
In the end, while we did not receive a new and exciting hardware announcement, Apple does not need one right now. Whereas hardware was the key to Apple's success in the past, now it is through its Services business, which leverages the massive hardware ecosystem. We have touted the potential of this world-class razor razor-blade business model for quite some time, and the newfound respect of this high-margin, rapidly growing business is what has taken the stock to its all-time highs.
Department Stores
So outside of tech, what else is making a big run right now? Easy. Check out the department stores. Portfolio holdings Kohl's (KSS) and Nordstrom (JWN) are both up big in today's session. In fact, KSS is up roughly 10% week to date, and JWN is no slouch either rising more than 4% week to date. We are restricted from trading both names right now, but if we were not we would reward our perseverance through their respective earnings selloffs in May by trimming a small number of shares and locking in what would be a double-digit profit in each name. We think both stocks can still go higher, but it would be too greedy to not take something off the table. Accordingly, we are also downgrading Nordstrom to a Two off its monster rally.
Financials
Lastly, there is only enough money in this market for a few groups to push higher, and the financials continue to lag the rest of the market. Citigroup (C) , Goldman Sachs (GS) , and JPMorgan Chase (JPM) have all been a disappointment in recent weeks, but we remain patient in this group because we think the financials will be a second half of the year story.
The catalyst that we think help spark a rally in each stock is the upcoming Comprehensive Capital Analysis Review held annually by the Fed at the end of June. If each bank passes the Fed's "stress test" (which we expect they will), investors should anticipate raised dividends and share buyback programs. These capital return announcements should help re-inspire the value sentiment in this beaten-down group, and the banks have plenty of capital available to return to shareholders.
To help familiarize yourself with the outcomes of the annual "Stress tests", please see our Alert from last year here.
Action Alerts PLUS, which Cramer manages as a charitable trust, is long FB, AAPL, AMZN, GOOGL NVDA, JPM, C, GS, KSS, JWM, PYPL and CRM.