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Momentum stocks are losing steam – and why we’re skeptical about China’s economic recovery (for now).

Posted on December 10, 2024 by Amelia Pressman

Every weekday, CNBC Investing Club with Jim Cramer publishes Homestretch – an actionable afternoon update just in time for the final hour of trading on Wall Street. Monday markets: The S&P 500 started the new week in the red after hitting another new all-time high on Friday. One theme we are seeing is declines in many momentum growth stocks that continued to rise daily without any new information and regardless of valuation. The poster boy for this group may have been AppLovin, which Jim talked about in his weekly column for club members on Sunday. AppLovin lost momentum on Monday after the S&P Dow Jones Indices selected two more companies – Apollo Global Management and Workday – for inclusion in the S&P 500. AppLovin was considered a leading candidate for inclusion, and traders are eager to pitch prospects in anticipation of the index fund buying that comes with being called up to the big leagues. Shares of AppLovin fell more than 11% on Monday. Elsewhere, analytics software provider Palantir, another stock that has risen sharply recently, fell more than 4%. It was up in pre-market trading. Buyers beware: China-linked stocks are outperforming after Communist Party officials promised “moderately easy” monetary policy and “more proactive” fiscal policy next year. However, we take the headlines with a grain of salt because we have seen that China has talked about a large stimulus package before and almost nothing has materialized. In other words, the market has already been affected by the economic recovery. Now it’s possible that China is serious about improving economic growth and is waiting for President-elect Donald Trump to impose tariffs on its goods. But our investment thesis is not based on the idea that China will finally stay true to its word and meaningfully stimulate its economy. If they do it this time, of course we have a few names in the portfolio that should benefit. The most prominent names on this list are Danaher and GE Healthcare, both of which rely on healthcare customers. At both companies, customers have delayed orders in anticipation of economic stimulus packages. DuPont is another club stock on the rise, although we’ve never really thought of it as a stimulus for China. We view DuPont as a special situation in which the sum of its three “parts” is worth more than the whole. We believe value will be unlocked when the company is split into three publicly traded companies, which could be completed by the end of next year. Next up: After Monday’s closing bell, we’ll get the latest quarterly results from Oracle, home builder Toll Brothers, database software provider MongoDB and Midwest convenience store operator Casey’s General Store. When Oracle last reported on September 10, the software giant’s commentary reinvigorated AI trading. Management said Oracle has 162 data centers in operation and under construction, but ultimately expects to have 1,000 or 2,000 (or more). Companies reporting before the opening bell on Tuesday include AutoZone, retailer Ollie’s Bargain, DSW owner Designer Brands and plumbing supplier Ferguson. (A complete list of Jim Cramer’s Charitable Trust stocks can be found here.) As a subscriber to CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable foundation’s portfolio. If Jim discussed a stock on CNBC television, he waits 72 hours after the trade alert is issued before executing the trade. THE INVESTING CLUB INFORMATION SET FORTH ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, ALONG WITH OUR DISCLAIMER. THERE ARE NO fiduciary duty or duty IN RECEIVING YOUR INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR PROFITS ARE GUARANTEED.

Every weekday, CNBC Investing Club with Jim Cramer publishes Homestretch – an actionable afternoon update just in time for the final hour of trading on Wall Street.

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Momentum stocks are losing steam – and why we’re skeptical about China’s economic recovery (for now).

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