Offbeat Cramer issues a warning to the bulls: Too many groups are lagging behind the market leaders

01:45  06 june  2018
01:45  06 june  2018 Source:   cnbc.com

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It's rare that CNBC's Jim Cramer comes across stock market sentiment as optimistic as Monday's, where investors see the glass half full but consider it to be brimming. "In the last 72 hours, we have seen a whole slew of events that might normally give investors pause or make them think, reflect.

Cramer finds 7 negatives-turned-positives that are fueling the bull market . "Logically speaking, many of these moves should not be happening. The action's way too positive, but then again, you could also argue that maybe we've all just been too negative for too long.

The major averages may paint an ideal picture for the stock market, but CNBC's Jim Cramer warned on Tuesday that some strong sectors aren't enough to sustain a long-term rally.

"The truth is that while a couple of groups are leading the way here, namely tech and retail, very few stocks away from those groups are following," the "Mad Money" host said. "If we don't get some more followers soon, this could spell the end of this advance."

Cramer couldn't discount the strength in tech, with Netflix's stock jumping nearly 2 percent, or in retail, with Gap and Macy's stocks soaring 6.8 and 8 percent, respectively.

But he knew that two strong sectors simply couldn't take the rest of the market to new highs.

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Other leaders in the group are sparse. The rest of the group lagged . “I find the action in this group disturbing,” Cramer said. There are just too many negatives, with a total of eight down for the year.

Most of Wall Street expects Apple to report a bad quarter, which Cramer likes because it lowers the risk. I think we'll find a continuation of this week's action, where the techs, the financials and the industrials keep going higher, while everyone else just kind of lags behind .

"The bulls have retail, which means the consumer is smoking, and the bulls have tech, the largest sector in the S&P 500," he admitted.

"Sadly, that's where it ends," Cramer said. "There are so many other groups lagging behind and they represent a major obstacle to this market charging to new highs."

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Obstacle No. 1? The bank stocks, the second-largest market sector after tech and one that Cramer has frequently labeled a necessary "leadership group" for any rally.

Even though business and employment are strong, big bank stocks have fallen out of favor on Wall Street due to a less favorable trend: declining interest rates.

"As long as interest rates keep falling, the bank stocks will remain out of favor," Cramer said. "We've entered a theater of the absurd ... where the only thing that can bolster this group is the thing that will ultimately slay it: interest rates."

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This debacle stems from an age-old idea that as interest rates rise, banks instantly get more profitable because they earn better returns from investing consumers' deposits risk-free, Cramer said. So when rates fall, many market-watchers assume the banks will suffer accordingly.

But the "Mad Money" host argued that other factors, like healthy loan growth, should be enough to keep top financial stocks like J.P. Morgan, Bank of America and Citigroup afloat.

"I think it's insane that the bank stocks are so cheap when the loan growth is this strong," he said. "J.P. Morgan, best of the bunch, [sells for] 11 times next year's earnings. Bank of America? Ten times next year's earnings. Citi? Nine. Goldman Sachs, my alma mater, [sells at] nine and a half. Come on!"

For now, Cramer acknowledged that investors are unlikely to come around to the bank stocks despite the underlying companies' seemingly attractive value propositions.

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After the decline in the FANG stocks on Tuesday, CNBC's Jim Cramer issued a warning to investors who own the technology-laden group . "I think it's gaining market share and has about 0 billion in cash to fall back on," he said. WATCH: Cramer on the bull -bear battle in FAANNG.

This will be require a "sector and stock-specific" focus as the bull market hits its peak later in 2018. show chapters. The firm also is warning that the next recession could be deeper than many economists are now forecasting.

But he hoped that when federal regulators issue the banks' stress test results at the end of June, which could spur share buybacks and dividend raises, Wall Street would warm back up to the group.

And it wasn't just the banks: Cramer noted that shares of the drugmakers, health insurers, medical device makers, transportation companies, airlines and consumer goods plays were all struggling to pull their weight.

"Here's the bottom line: without more leadership than the techs and the retailers, you can't expect this market to make a legitimate assault on new highs as so many people are now expecting," Cramer said. "The bulls can claim it's a work in progress, but the bears just say it ain't working. We need to see more leadership, and while I think it can emerge, right now it's just nowhere in sight."

Disclosure: Cramer's charitable trust owns shares of J.P. Morgan, Citigroup and Goldman Sachs.

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