Jim Cramer: It's All Good News -- So Cue the Rotation in Stocks

All the reasons the Fed was waiting to raise interest rates are gone. That means its time to shift companies that need low rates to prosper out of your portfolio.
By Jim Cramer ,

Is good news really bad news? Do we really have to sell stocks because we, at last, got a bountiful employment report, 271,000 people being hired in the month of October, with a jobless rate of 5%, a seven-year low?

No.

But there will be a rotation in stocks, and that will make those not familiar with the profession of money management very uncomfortable owning certain stocks even as there are plenty of opportunities to make money in others.

First, a little explanation. The Fed must raise rates this year. It has to because all of the reasons it has been on hold are now gone.

We've been waiting for an unequivocally strong employment report that even shows some wage growth, and we've gotten it. We've been waiting for foreign turmoil to stop, and that's happened. China's stock market is, once again, in bull market mode, up more than 20% from the bottom. Europe is on the mend according to every company's CEO interview, with even Spain and Italy having a pulse. Only South America is horrible and our economy is strong enough to brush that off in stride.

Now, some industries really need ultra-low rates to prosper. Given that I think the first hike will simply inspire talk of more hikes -- even if the Fed issues a one-and-done statement -- you are going to see housing cool.

We know that every time we get a whiff of higher rates, we see the dollar get super-freaking strong. We know that a powerful dollar hurts the earnings of the international companies, whether they be consumer packaged goods behemoths, pharmaceutical giants or manufacturers. We know that all of these companies' stocks have been screaming higher of late because few bet that we would have such a bountiful employment report.

Big money is out of position for higher rates, having bid up stocks of companies that benefit from low rates and a weaker dollar. Those are going to come in for profit-taking.

But the banks, oh the banks. They have done nothing for years relative to the rest of the market. They have been languishing under the pretexts of both intense regulation and ultra-low rates. Now higher rates are in the offing. They will make more money with your deposits. The regulatory environment has gotten more benign. The big fines are winding down.

In short, it's the banks' turn to rally. The biggest winners will be the ones with the biggest deposit bases, and that means JP Morgan Chase (JPM) - Get Report , Wells Fargo (WFC) - Get Report and, most of all, Bank of America (BAC) - Get Report , the latter two of which are part of the Action Alerts PLUS portfolio. These stocks, which have moved nicely from when they reported, still are way behind the market. If you don't own one, you should, and make no mistake about it, the one with the most leverage to higher rates is Bank of America.

At the same time, the group that's going to be penalized the hardest is health care. Unlike the banks, which were under-owned going into this number, the health care stocks are over-owned. Ironically, they are also the ones with the most onerous headline risk because it is an election year, and a couple of bad actors have created a health care piñata that all candidates and sitting politicians have a chance to take a whack at.

So, what do you do?

The good news is that for those with an index fund as their primary investment vehicle, there are enough financials in the S&P 500 that they could cancel out the downside of health care. The stocks of the highest-growth companies, like FANG, can do well, too. Their growth can always trump a strong currency's side effects.

But there are enough international companies that are hurt by the dollar that you have to expect more volatility until we see the whites of the actual rate hike, where we might not even sell off. Yes, it will be that baked in, even though chatter of the next hike will immediately begin. All I can tell you is that the big boys will be buying banks and selling health cares for the next month, and you have to adjust accordingly or accept the consequences of the brutal rotation that's just begun to occur.

At the time of publication, Jim Cramer's charitable trust Action Alerts PLUS was long WFC and BAC.

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