NEW YORK (TheStreet) -- When we zoomed into the first quarter, we had a multi-cylinder market.
Smart devices were powering a tech boom. Big exporters were taking advantage of robust economies in East Asia and a renewed Europe that seemed to put its troubled finances behind it. Banks, having paid back TARP, were ready to return capital. Health care, freed from the cloud of regulation, seemed ready to take off.
What a difference three months make. European debt concerns resurfaced and interest rates have climbed ever higher in Portugal, Greece and Spain. North Africa and the Middle East played dominoes, started by political uprisings in Tunisia that dropped into Egypt and then headed for Bahrain and Saudi Arabia before landing in Libya, driving oil up to $100 a barrel in their wake.
An earthquake and tsunami slammed into Japan, causing tragedy and fear in the markets, courtesy of runaway nukes, that was unprecedented. Besides the incredibly sad loss of life, the ensuing destruction seems incalculable given the inability to reach some areas or the isolation of regions affected by radiation fallout.
Major benchmarks have stalled after climbing by double digits during the previous two quarters. Where do investors go from here?
Let's start with where they
go in the second quarter:
- Chinese inflation has gotten away from the government, something a planned economy can't tolerate. We had escaped any real slowdown from China's interest rate increases until near the end of the quarter when telecom equipment makers
signaled that business in China was slowing.
Finisar went as far as to say there's a telecom equipment inventory "correction," meaning too much equipment and not enough demand. The guidance cut Finisar shares in half and had a deleterious effect on all the tech stocks that sell to the cellphone equipment and broadband sector.
- Tech could have withstood the shock of too much inventory in one country, even one as powerful as China, if it was the only soft story out there. But a growing glut in the tablet computer market will likely create more problems for the industry.
Company after company have tried to mimic
wildly successful iPad, flooding the market with perhaps 100 million extra tablets. However, Apple recently unveiled an upgraded iPad that's considered so vastly superior that it will probably crush demand for also-ran tablets. That's a lot of product for computer makers to be stuck with, and a lot of lost orders for parts suppliers.
plan to buy
will add to suppliers' woes by making it easier for the telecom giant to demand lower prices.
While I still like Apple and own it along with
, I believe that tech should not be emphasized for the second quarter.
Here's where investors will find the best opportunities:
- Financials, which do best in an economic rebound, will probably be one of the best-performing sectors. Go with the cheapest banks, such as
Bank of America
, and the best-run, which is
Bank of America will likely gain during the second half of 2011 as housing and employment come back. PNC, which hasn't avoided the troubles that have plagued the industry, has been raising its dividend and buying its stock, something I expect to happen this spring.
- Demand for food and ethanol is increasing worldwide, boosting the prices of commodities. The car and housing industries are coming back in the U.S., and more than $150 billion in reconstruction work might be needed in Japan.
make the most sense. Caterpillar's going to get more than its fair share of business from the Japanese reconstruction. Deere? High food prices means wealthier farmers, which means more equipment purchases.
Metals and mining
- These industries are best played with
, which also offers a bet on the nascent aerospace cycle and demand for natural gas turbines, a trend you can expect after the nuclear catastrophe in Japan.
I also like
, the huge Brazilian metals company. It's a veritable supermarket of minerals that countries will shop as they build their infrastructures, driving prices higher.
- Oil prices will probably stay above $90 a barrel as long as the conflicts in the Middle East and North Africa continue. That means oil, natural gas and coal producers will see a lot of activity.
There are lots of ways to win. I like
as a driller,
as two fast-growing majors, and Southwestern Energy as the cheapest natural gas play. This sector must be overweighted.
- Retail has a bunch of winners.
offers a catch-up play to
, the cheapest of the department store stocks, is returning more capital to shareholders than any other retailer in the form of dividends and buybacks.
Many people aren't intrigued by the market if tech stocks aren't playing a leadership role. Me? I always prefer the mainstay industrials and banks as leaders. That way you have a broader advance and one that is more self-sustaining and less hostage to product cycles and cutthroat competition.
Plain and simple: I am a buyer, despite the pessimism surrounding the market. I expect stocks to rebound from declines in recent weeks, but with a wider variety of companies leading the way this time.
Time to pull the trigger, just be sure you do it with different stocks this time around.
Cramer holds shares of Alcoa, Apple, Accenture, Apache, Bank of America, Caterpillar, Deere, EMC, Hess, Kohl's, Lowe's, Oracle, PNC, Vale and Weatherford in his
charitable trust portfolio.
Jim Cramer runs the charitable trust portfolio, Action Alerts PLUS, and writes daily market commentary for TheStreet's RealMoney premium service.Which stocks will Jim Cramer buy next? Find out with a FREE trial to Action Alerts PLUS.
Jim Cramer, founder of TheStreet.com, writes daily market commentary for TheStreet.com's RealMoney and runs the charitable trust portfolio,
. He also participates in video segments on TheStreet.com TV and serves as host of CNBC's "Mad Money" television program.
Mr. Cramer graduated magna cum laude from Harvard College, where he was president of The Harvard Crimson. He worked as a journalist at the Tallahassee Democrat and the Los Angeles Herald Examiner, covering everything from sports to homicide before moving to New York to help start American Lawyer magazine. After a three-year stint, Mr. Cramer entered Harvard Law School and received his J.D. in 1984. Instead of practicing law, however, he joined Goldman Sachs, where he worked in sales and trading. In 1987, he left Goldman to start his own hedge fund. While he worked at his fund, Mr. Cramer helped start Smart Money for Dow Jones and then, in 1996, he founded TheStreet.com, of which he is chairman and where he has served as a columnist and contributor since. In 2000, Mr. Cramer retired from active money management to embrace media full time, including radio and television.
Mr. Cramer is the author of "
," "You Got Screwed," "Jim Cramer's Real Money," "Jim Cramer's Mad Money," "Jim Cramer's Stay Mad for Life" and, most recently, "Jim Cramer's Getting Back to Even." He has written for Time magazine and New York magazine and has been featured on CBS' 60 Minutes, NBC's Nightly News with Brian Williams, Meet the Press, Today, The Tonight Show, Late Night and MSNBC's Morning Joe.