Fentanyl issues could derail the prospects of a U.S.-China trade deal if the Chinese government does not crack down on the highly-addictive pain relieve in good faith, CNBC’s Jim Cramer said Monday.
“We may eventually get a trade deal, but it won’t be quick, it won’t be easy, and you certainly shouldn’t be buying stocks just because you think a we’re on the verge of some kind of breakout,” the “Mad Money” host said.
The world’s two largest economies are far from reaching an agreement in part because China has not stopped the inflow of fentanyl, a synthetic opioid, into the United States, Cramer said. It has contributed to the ongoing opioid epidemic in America that led to 18,000 deaths last year, he noted.
The People’s Republic of China on Monday followed through on a pledge, though short of immediacy, it made in December to list the drug as a controlled substance. The new rule goes into effect May 1st.
Cramer said he doesn’t see this as a win for President Donald Trump, who has called on his counterpart to hold fentanyl “distributors and pushers” accountable by death penalty. The Chinese, however, have blamed the U.S. for its abuse.
“There was no serious push by the Communist Party [of China] to put a stop to this. Every time China’s banned one kind of fentanyl, their manufacturers just change the formula a little bit to something that’s now legal,” Cramer said. “This new ban is supposed to change all of that, but given China’s track record when it comes to upholding international agreements, consider me skeptical.”
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Cramer said investors can get an idea of how the market could perform in the second quarter by understanding how the major averages rallied during the first quarter of the year.
The Nasdaq had the biggest gain — 16 percent — to open the year. The S&P 500 rallied 13.1 percent and the Dow Jones Industrial Average added 11 percent in the first quarter. The indexes all added more or less 1.2 percent during Monday’s session.
“I think the stock market benefited from a dearth of new supply” due to the government shutdown, its impact on IPOs and the high-volume of company stock buyback programs, the “Mad Money” host said. “I think this market can go higher as long as we don’t get overwhelmed with new supply from this wave of IPOs, because I think the valuations are still too low for so many stocks, like we see from the top five performers in the Dow.”
It was a “fabulous windfall for investors” until Friday, Cramer said, when Lyft went public at $72 a share and traded as high as $88. The share price fell to nearly $69 at Monday’s close.
Cramer took a look at the Dow’s highest-performing stocks in the first quarter to predict the future.
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Cramer said he did not expect Lyft shares to get hit so hard on Monday after their after a positive Friday debut on the stock market.
The rideshare app traded as high as $88 a share in its first day, but tumbled nearly 12 percent to settle at $69.01 on Monday. With a load of highly-anticipated companies planning to go public in 2019, he said it’s a sign that investors must be very careful buying red-hot initial public offerings. Those include names such as Pinterest, Uber, and Airbnb.
But there is a way to make money on the IPO frenzy without buying the new stocks, Cramer said.
“If you want to play the IPO boom without taking the immense risk of buying these stocks right out of the gate, embrace the indirect approach and buy the more consistent winners here like Nasdaq, Goldman Sachs and Amazon,” the “Mad Money” host said.
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DowDuPont will officially split into three new companies on Tuesday and Cramer said he thinks the separated companies, as a whole, will be worth more than before.
Weakness in the global economy should already be baked in the security, but the prospective positives likely are not, the host said.
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In Cramer’s lightning round, he ran through his reactions to callers’ stock questions:
Goodyear Tire & Rubber Co.: “Oh, boy. Anything auto I think is going lower. I could not believe that Illinois Tool was so good today and some of the other auto-related. I’m gonna stay away from Goodyear.”
Fortive Corp.: “Spinoff of Danaher. I love Danaher even more than Frotive, but Fortive is a very, very good company. A lot of cyclicality to it, though.”
Western Digital Corp.: “It’s a very inexpensive stock, but I believe that their main products are coming down in price, so therefore I’d have to say no to Western Digital.”
Disclosure: Cramer’s charitable trust owns shares of Amazon, Danaher, Goldman Sachs,
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