We don't want stocks too hot as we enter earnings season, Jim Cramer told his Mad Money viewers Friday. Right now, what the market needs is more negativity.
Earnings are all about the "set up," or the narrative being talked about just ahead of earnings season, Cramer explained. The set up this quarter has been all about Donald Trump's tax cuts and deregulation plans. But deregulation might take longer than some investors think, and that's bad news for the banks that are starting to fade as interest rates peak, at least for the short term.
Then there's health care, a sector that was bolstered today by Ariad Pharmaceuticals (ARIA) $5 billion bid that took shares up 72%. Cramer said this sector too needs to have its enthusiasm tempered. With crude oil falling by 4% today, the oil stocks are also vulnerable for a pullback, Cramer noted.
Perhaps the only stocks Cramer was bullish about today were Procter & Gamble(PG) - Get Report and Coca-Cola(KO) - Get Report ; shares of both fell on an analyst downgrade. Cramer said he still likes the dividend yield and the longer-term outlook for both companies.
Executive Decision: Federal Realty Trust
For his "Executive Decision" segment, Cramer again spoke with Don Wood, president and CEO of Federal Realty Trust(FRT) - Get Report , the shopping center REIT that has been under pressure in an increasingly Amazon.com(AMZN) - Get Report world.
Wood explained that retail is all about supply and demand and even before ecommerce burst onto the scene, America had more stores per capita than any other nation. That's why Federal Realty is looking far into the future and investing today so that they will be relevant and flexible in 2020 and 2025.
When you invest in real estate, you're making a 50-year bet, Wood said -- which is why you better be right.
Application software provider Splunk(SPLK) - Get Report is one of Federal Realty's office tenants and Wood said they wouldn't have chosen that space unless it met the needs of their workforce going forward.
Wood remained optimistic, saying that Amazon is not the only game in town and you can't paint all retailers with the same brush. Not all stores are created equal and there are many niche players that have figured out a winning strategy.
Valuing Bank Stocks
What if banks were valued on earnings instead of how many fines the government imposed this quarter? Turns out, that's exactly what happened today as JPMorgan Chase(JPM) - Get Report kicked off earnings season for the financials.
It may be hard to remember, but banking is actually a terrific business. You take in deposits and invest that money at higher interest rates. And that simple business model is what JPMorgan put on display this quarter, despite its shares still trading at a scant 12 times earnings.
JPMorgan is a consistent earner, Cramer said, and thanks to consolidation, has little competition. Bank of America(BAC) - Get Report is another winner with terrific loan and deposit growth. Even embattled Wells Fargo(WFC) - Get Report was able to eek out 6% deposit growth.
All of these banks were priced in anticipation of increased scrutiny from Hillary Clinton and Elizabeth Warren, Cramer noted, but now under Donald Trump, these stocks can once again be valued on pure earnings.
Executive Decision: First Horizon National
In his second "Executive Decision" segment, Cramer also spoke with Bryan Jordan, chairman, president and CEO of First Horizon National(FHN) - Get Report , the regional bank with shares up 60% since Cramer last checked in a year ago. First Horizon just delivered a small earnings miss but reported 14% deposit growth.
Jordan said that he's seeing tremendous enthusiasm since the election and customers are willing to borrow more for plants and equipment, and to buy homes. He said that First Horizon is well positioned for growth in 2017.
When asked about the Trump administration's effect on his business, Jordan said that deregulation would benefit many of his customers as well as his business. The increased regulations for buying a home, for instance, has added a lot of extra time and complexity to getting a loan.
As for higher interest rates, Jordan noted that for every 1% increase in interest rates, First Horizon will add $37 million to its bottom line.
In his "No Huddle Offense" segment, Cramer said it never pays to get too negative on a best-of-breed company. Case in point: Dexcom(DXCM) - Get Report , the glucose monitoring company that saw its shares rocket 25.9% after a surprise announcement that the government is classifying Dexcom's G5 device a durable medical equipment and is thus eligible for Medicare reimbursement.
But Cramer said that Dexcom always had the superior product and it was always expected that it would qualify for Medicare payments. The only thing not expected was the timing of the government's decision.
That's why Cramer again cautioned that too much negativity is rarely a good thing when it comes to investing.
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At the time of publication, Cramer's Action Alerts PLUS had positions in AAPL, WFC, NXPI and MMP.