Jim Cramer reveals how to deal with a market we haven’t seen in decades

Maybe new investors don’t care about valuations. Maybe new ETFs can blow up Wall Street. Maybe insiders are in no rush to sell. Maybe the earnings will be much better than we think. Maybe some part of the market mechanism is broken. Or, maybe the entire market has new expectations for stocks — and stocks are meeting and even exceeding those expectations.

“I never want to say that there’s too much money to be made in the market. I also hate to be — and I keep using that word — a call-maker. But when you have a stock that’s just going up and up and up, you have to ask yourself if anything has really changed.” – Jim Cramer said

“I want to focus on Applovin for a moment. Applovin is a profitable company that connects businesses with consumers — 1.4 billion of them, across platforms. It uses generative artificial intelligence to improve the performance of those ads. If you had to design a company with a better description for this moment, that makes the most sense given everything that’s going on in the advertising world, it would be this one. Maybe that’s why it’s grown more than 900% year over year. Maybe that’s why it’s now a company worth about $140 billion.” – shares Jim Cramer

There has been some inside selling, but nothing huge. According to regulatory filings, Chief Legal Officer Victoria Valenzuela just sold 17,925 shares for $6.3 million. But Valenzuela has control over another 405,000 shares. Applovin CEO Mary Georgiadis sold $10 million worth of shares in the last week of November. But Georgiadis still owns 154,500 shares through a partnership and 35,000 directly. It’s not a huge dump. Another CEO, Dawson Alyssa Harvey, sold 3,000 shares, netting $977,000. But she still owns 7,359 shares. There have been other big sellers. Andrew Karam, VP of Product, sold 5.8 million shares, but he still owns 13.1 million shares. This is certainly not a distress sale.

I point out these sales because if this were the period 2000-2002, we would have seen these positions being liquidated. Insiders were selling at a rate that was incredible. But not as fast as the companies themselves. Something like Applovin would be filing multiple stock sales applications to cover expenses. But Applovin doesn’t have to do that. Earnings growth is accelerating. This is a truly remarkable company. What keeps it going up and up is that every time it hits a new level, one analyst after another raises their price targets for the stock. It’s a virtual cycle.

Oh, and one thing that certainly doesn’t matter is valuation. It’s trading at 120 times current earnings and 98 times forward earnings. Don’t worry about those valuations either. Applovin is an enterprise software company, and it no longer needs to have a valuation fundamental to continue growing.

How about a climax here? The company was valued at $13 billion a year ago. Now, with its new market cap, the company is poised to be added to the S&P 500. There was a lot of demand for the stock for most of last week on an ill-advised bet that it would be added after the close of trading on Friday. It wasn’t. So you might see it trading lower on Monday morning after a nearly 4% drop on Friday. But who knows for how long.

As I search for clues about what’s really going on in this market, I keep coming back to one thing and one thing only: There’s no supply. We don’t have new companies coming out with new offerings because even when we’re at historically high levels, there’s so much resistance from companies to going public. It’s difficult and invasive. With so many other ways to raise money — like private equity and venture capital firms trying to get in — the stock market means almost nothing.

It’s not a way to raise money, it’s just another way, with the Securities and Exchange Commission (SEC) not ready to move to a more cautionary approach for buyers. What you really need is for the SEC to start approving things faster, without a lot of scrutiny, and just telling people to be wary of all stocks. Doing that and looking for outright lies might be all we need. By the end of Gary Gensler’s tenure as SEC chairman, he was way out of step with America.

It’s a strange thing, to have doubts that there aren’t enough stocks. But new offerings alone could bring this market down, because valuations don’t mean much for most stocks anymore. If you have an S&P 500 with a multiple of 28 times earnings, just one less than the level before the 1987 crash, and no new big sellers coming to the public market or finding themselves attractive to the private sector.

As interest rates fall, that will only make stocks more attractive and attract more money through index funds, which will absorb any new limited supply that may be available.

Lest you think we’re going to have inflows, remember that we’re going to have a new wave of mergers and acquisitions soon — by all accounts — given that President-elect Donald Trump’s administration is not going to be as anti-merger as President Joe Biden’s. I say this very openly because there has never been an administration that has hated acquisitions as much as this one.

Last week I talked at length about animal spirits and how they can often boost stock prices by achieving ever-increasing price-to-earnings multiples for the same earnings. This multiple expansion could explain a lot of what’s been happening lately. That’s how we get this S&P 500 with such high price-to-earnings multiples.

There is complacency, according to the VIX, which is very low. The VIX, short for the CBOE Volatility Index, is the so-called Wall Street fear index. We have very little spread between junk bonds and higher-rated bonds and government securities, a sign that risk is not being priced properly. We don’t seem to have any worries about wars or uncertainty abroad, of which there are many. We don’t worry so much about shortfalls when we get them. Complacency again? Or maybe you just understand that if you sell on those shortfalls, you’re almost always going to regret it — at least in this market.

The S&P 500 Short Range Indicator, a momentum indicator, is down nicely, breaking out of the overbought zone on Friday, where it has spent the previous five sessions. The indicator is not oversold by any means. So we will not buy stocks until they start to fall.

Stanley Black & Decker, the biotech company Danaher, electronics trader Best Buy and Mexican brewer Constellation Brands because they are losers in a market of winners. This market only loves winners. There is no room for a company that imports from China, like Best Buy and Stanley Black & Decker. There is no room for a company that imports from Mexico, like Constellation. There is no room for a company that is marginal and does business in China, like Danaher.

But the good news is that we have a bunch of other stocks in the club’s portfolio that don’t have these obligations. As long as we have them, I can tolerate the losing positions. These four companies represent value, and the worst thing you can say about a stock is that it represents value, especially if it has something to do with tariffs.

We’ve always been taught that you can’t outrun the laws of human nature, and that people will always be greedy and they will always be cowards. But there’s very little fear—and strangely enough, if you consider the desire of insiders to stay in their stocks, very little greed, because they really have to believe that their stocks will go up, or they never would have.

Can it go on?

It’s been going on for a very long time, and all the traders who talk on TV have been out of this market so many times that their assessments are hardly worth paying attention to. They, not the “simpletions” who buy and hold the stocks, have been the losers. The winners? Those who believe in stocks of companies with unlimited growth or that may have unlimited growth in the future.