Stocks tumble on manufacturing weakness—here's what Cramer and other industry pros see ahead

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Call it a December dip.

Stocks fell on Monday, the first trading day of the month, as weaker-than-expected results from November’s ISM Manufacturing index reading weighed on the broad market. The Dow Jones Industrial Average dropped nearly 270 points, while the S&P 500 posted its worst one-day decline since Oct. 8.

Experts, however, weren’t too concerned about the weakness, citing a largely optimistic macroeconomic picture heading into the end of the year.

Here’s what three of them, including legendary stock picker Jim Cramer, said of the move:

Jim Cramer, host of CNBC’s “Mad Money,” said there was “nothing” foreshadowing a major year-end sell-off:

“Nothing worries me in the sense [of] looking for a big sell-off in December. I’m looking for more reasons for it to go higher other than constant reiterations of analysts, which we keep getting, because wow. I mean, November was supposed to be a bad month … and it wasn’t. It was a great month. I’m seeing green shoots in Europe from auto sales. Auto sales are up. [If] we solve Brexit, it’ll be a big matter. … Take a stock like GE. GE’s at [$]11. They’ve got a health-care conference, Investor Day, a lot of good things. I see a lot of down-and-outers doing well. I see a lot of companies that are levered to the enterprise not doing well. Take a look at Dell. That’s enterprise. Cisco is enterprise. But the consumer — it’s Target doing great, Walmart doing great versus Kohl’s doing terribly. … We look at the Adobe numbers, which now is the official tracker of the economy — isn’t that amazing? And that was something [Adobe CEO] Shantanu [Narayen] predicted. And I come back and I say, ‘What the hell is Caterpillar doing at 144 if there’s no [trade] deal?”

RBC Capital Markets’ Lori Calvasina, the firm’s head of U.S. equity strategy, said she wouldn’t be buying the market’s dips just yet:

“We’ve looked at the last month or two, and we’ve said it seems a little bit odd to us. I mean, we do think stocks are going to be higher over the next year. We don’t think we’re headed into a recession. But you look at how markets have acted; they’ve acted like we’re heading into this massive, sharp reacceleration in economic activity, and that just hasn’t been our view. That’s not what we heard in this last reporting season. I actually think this ISM number today actually dovetails pretty well with the tone we just got from 3Q earnings. … I think eventually I’d like to buy on a dip. I mean, we’re looking for 3,350 at the end of next year, so we’re not bearish by any stretch, but at the same time, this list of good stuff going on underneath the surface seems very priced in. If you look at the CFTC data on U.S. equity futures positioning, we’ve just hit a new high, well above where we were, actually, around the tax reform passage in late 2017. Valuations are telling a similar story. So, we’ve hit peaks in positioning and valuation that have set markets up for bad news. I think that’s where we are. We need to see a bit more of a dip, I think, before you jump in and buy.”

Jim Paulsen, chief investment strategist at The Leuthold Group, said one weaker set of results doesn’t change an otherwise bullish layout:

“Well, it’s a bit [of a] weaker number, … but I don’t think it changes a lot. The international number, as you said, was better. A lot of numbers here have been better of late, too. The GDP Atlanta number just came way up to 1.7% for the final quarter. What I’m impressed by … is the amount of unused capacity we have left even though we’re in the 11th year of an economic recovery and bull market. We’ve got a silent productivity miracle going on where productivity’s popped up in the last three years from what it was in the six years prior to that pretty significantly. We’ve got a rise in the labor force participation rate, which is odd this late in the cycle. Job creation was up 1.4% in the last year, but the unemployment rate only fell two-tenths because we’re having new entrants. We’ve got a surge in household formation going on because millennials are finally aging over 30 years of age. We’ve got a pristine household balance sheet with untapped positive savings sitting there and low debt-to-equity ratios. We’ve got a manufacturing sector which we can revive from a recession again. And we’ve got a wall of worrywarts which you wonder if we could still convert a few of those to some optimists. That’s a lot of excess capacity for further economic recovery and further highs in this market. It’s not going to be a straight line, but I think you’ll want to buy on the dips here if we get some weakness.”

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