The action on Wall Street this week is a reminder of the importance of portfolio diversification, CNBC’s Jim Cramer said Wednesday, as tech-only portfolios have been getting beaten down during the bout of volatility.
“Tech’s a good part of the market, it’s just that many of these stocks suddenly aren’t worth as much as we thought. Some of that’s because the whole enterprise software cohort has gone out style thanks to AI,” Cramer said.
Both the S&P 500 and Nasdaq Composite fell Wednesday thanks to an intensified sell-off in tech — a cohort that Cramer said some investors seemed to believe was the “only investable part of the stock market” in recent years. By contrast, the blue-chip Dow Jones Industrial Average — consisting of many old-economy companies — added 260 points, or 0.5%, on Wednesday.
On Wednesday, chip designer Advanced Micro Devices plummeted 17% after what some investors perceived as a disappointing first-quarter outlook. Other chipmakers such as Broadcom and Micron Technology also fell. Additionally, there was additional pain for some software stocks, which have been at the epicenter of the tech selling in recent days amid fears of AI disruption. Oracle dropped 5%, while the iShares Expanded Tech-Software Sector ETF fell for the seventh session in a row.
Still, there have been winners elsewhere across various industries. Campbells, PepsiCo, Smuckers, and even Kraft Heinz, have gone higher even despite the threat of GLP-1’s.
Within health care, Johnson and Johnson, Merck, and Amgen have performed well while still offering value for investors.
“Even after the runs they have had this year alone they’re stocks not expensive at least versus the market,” Cramer said.
Banks are also advancing in recent days, Cramer noted, because investors may be believing that these are the types of firms that benefit from artificial intelligence improving efficiency. So are the industrials like Honeywell, Dover, and Emerson Electric.
“Think of what they have: they have earnings, they have dividends. They’re not that expensive, at least versus tech. They are delights with buybacks. They don’t overpay the people with stock options,” said Cramer.
“Plus, during earning season, they can give you huge upside surprises and their stocks are being rewarded this year. It’s how the stock market was meant to work.”
Disclosure: Cramer’s Charitable Trust, the portfolio used by the CNBC Investing Club, owns shares of AVGO, HON and DOV.
