Digest

This podcast episode delves into the quarterly repricing process in the stock market, commonly referred to as "Ernie's season." Jim Cramer explains how this period, characterized by increased volatility and price adjustments as companies release their earnings reports, is influenced by external factors like energy prices and global events. He emphasizes the importance of understanding "associated moves," stock price fluctuations driven by factors tangentially related to a company's future, and how these can impact stock prices. Cramer analyzes the impact of China's economic slowdown on luxury goods companies, highlighting the decline in LVMH's sales in Asia-Pacific. He also discusses the impact of declining oil prices on various sectors, explaining how lower gasoline prices can benefit retailers, restaurants, and travel and leisure stocks. Cramer criticizes the practice of extrapolating from one company's earnings to the entire industry, arguing that it can lead to absurd market reactions. He uses the example of ASMR, a Dutch semiconductor capital equipment maker, whose earnings report caused panic in the semiconductor world, even though it was a mistake. He also discusses the misinformation surrounding Johnson & Johnson's earnings report, highlighting the company's strong performance in cancer drugs but noting the impact of issues in Asia on its Medtech portfolio. He praises J&J's efforts to resolve lawsuits and the potential for a "brand new J&J" in the near future. Cramer describes the "sloppy" way Wall Street reconsiders stock prices during earnings season, arguing that the initial post-earnings trading is often driven by oblivious action and parsed headlines, rather than a thorough analysis of key metrics. He advises regular investors to avoid participating in this process, as it can lead to losses. He discusses the positive impact of Alex Chriss, the new CEO of PayPal, on the company, highlighting the stock's recent parabolic move and attributing it to Chriss's leadership. He encourages investors to avoid participating in the initial post-earnings trading frenzy. Finally, Cramer discusses Wells Fargo's recent stock performance and attributes it to CEO Charlie Scharfe's long-term comeback plan. He highlights Scharfe's efforts to turn the bank around, including investing in technology, cutting costs, and focusing on core businesses. He praises Scharfe's combination of vision and operational skills.

Outlines

00:00:29

Ernie's Season: Market Volatility and Repricing

Jim Cramer discusses the market volatility during "Ernie's season," the quarterly repricing process. He explains how associated moves, driven by external factors like energy prices and global events, can impact stock prices. He highlights the decline in oil prices due to Israel's stance on Iran's oil facilities and the weakness in the Chinese market.

00:01:16

The Quarterly Repricing Process: Ernie's Season

Cramer delves deeper into the quarterly repricing process, explaining how most stocks trade with the S&P 500 basket unless significant events occur. He emphasizes that associated moves, often tangentially related to a company's future, can influence stock prices.

00:01:51

Market Impact and Analysis: China, Luxury Goods, and Oil Prices

Cramer discusses the impact of China's economic slowdown on luxury goods companies and the impact of declining oil prices on various sectors. He highlights LVMH's sales decline in Asia-Pacific due to weakness in China and explains how lower gasoline prices can benefit retailers, restaurants, and travel and leisure stocks.

00:03:32

Avoiding Misinformation and Thoughtless Trading

Cramer criticizes the practice of extrapolating from one company's earnings to the entire industry and its customers, leading to absurd market reactions. He discusses the misinformation surrounding Johnson & Johnson's earnings report and criticizes thoughtless trading, using the examples of Johnson & Johnson and Goldman Sachs. He advises regular investors to avoid participating in the initial post-earnings trading frenzy.

Keywords

Q&A

• What is "Ernie's season" and why is it important for investors?

  "Ernie's season" refers to the quarterly repricing process in the stock market, where companies release their earnings reports. This period is characterized by increased volatility as investors react to the new information. Understanding this process helps investors navigate the market fluctuations and make informed decisions.

• How do associated moves impact stock prices during Ernie's season?

  Associated moves are stock price fluctuations driven by external factors, often tangentially related to a company's future. These factors can include changes in energy prices, global events, or industry trends. Investors need to be aware of these associated moves to understand the underlying drivers of stock price movements.

• What are the key takeaways from the discussion about China's economic slowdown and its impact on luxury goods?

  China's economic slowdown has significantly impacted luxury goods companies, as evidenced by LVMH's sales decline. This highlights the importance of diversifying investments and not being overly reliant on a single market.

• How does the decline in oil prices affect different sectors of the economy?

  Lower gasoline prices can benefit retailers, restaurants, and travel and leisure stocks, as consumers have more disposable income. However, these benefits can be short-lived and subject to market volatility.

• Why does Cramer criticize the practice of extrapolating from one company's earnings to the entire industry?

  Extrapolating from one company's earnings to the entire industry and its customers can lead to irrational market reactions. This practice ignores the nuances of individual companies and their specific circumstances, resulting in inaccurate price assessments.

• What is Cramer's advice for regular investors during earnings season?

  Cramer advises regular investors to avoid participating in the initial post-earnings trading frenzy, as it is often driven by emotion and speculation. He suggests focusing on long-term investments and avoiding short-term trading during this volatile period.

Show Notes