Investors in technology stocks should buckle up for a wild ride as the group turns toxic in a rising inflation environment, CNBC’s Jim Cramer said Wednesday.
“If you own the turbo-charged growth stocks … you either need to steel yourself for the pain or cut your losses on the next sharp move up, because we’re in a new market that’s very different from last year,” the “Mad Money” host said. “What worked in 2020 hasn’t been working in 2021 and that’s not gonna change, so get used to it.”
That explains the shellacking in stocks like Tesla, Teladoc Health, Square, Roku, Shopify, Zillow, Twilio, Spotify, Coinbase and Exact Sciences, Cramer noted. Most of their shares are down double digits in the month of May.
Cramer referred to them as “WoodStocks,” dubbed after Cathie Wood, portfolio manager of the popular Ark Invest firm. The stocks make up the largest positions for Ark, whose exchange-traded funds include the ARK branded funds of Innovation, Genomic Revolution and Fintech Innovation, among others.
“Cathie Wood’s fantastic at identifying [long-term growth] stocks like Twilio, but they’re not stocks for all seasons,” Cramer said. “They don’t work in this environment and … they really don’t work in any inflationary environment where bond yields are on the rise.”
Commenting on the pullback in tech stocks, Wood told CNBC on Friday that she “love[s] this setup” for the company’s long-term outlook.
After outperforming the major stock averages by a wide margin last year, the Nasdaq Composite has been the most volatile index since the start of the new year. The tech-heavy index dropped 2.7% in a market-wide sell-off Wednesday, driven by the inflation number.
Cramer is expecting more downside in the tech cohort until inflation fears subside.
“It ends when the inflation goes away or is tamed somehow,” he said. “With the exception of lumber and some semis, there’s no sign that commodities are cooling off any time soon.”