Jim Cramer Sounds Cautious On This Market. Here’s What I’d Buy in Response

I don’t know about you, but Mad Money host Jim Cramer sounded very cautious about the state of the market in recent weeks. Undoubtedly, the technical picture does not look all that good.

And while it’s okay to be bullish about the AI revolution as the technology continues to break new ground, there are other concerns, including the impact of heavy CapEx spending on margins (and maybe even credit ratings), the re-escalating situation going on in the Middle East, the latest words from Fed chair Kevin Warsh, or just heightened valuations and the added volatility in the tech-heavy Nasdaq 100, which has since fallen into a correction, by the way.

It’s natural to get cautious when someone like Jim Cramer gets cautious

In any case, I think Cramer is wise to consider stocks beyond those that have hogged the headlines in recent months. While the man isn’t saying “sell, sell, sell,” his “struggling to have reasons to buy,” I think, is enough reason to convince investors to re-evaluate their risk profiles and maybe take a step back to some of the more defensive stocks that may have been neglected amid the past-year ascent in the AI frontrunners. Indeed, when momentum turns and reversions to the mean hit, things could have the potential to get really nasty.

Personally, I think the concentration of pain in the tech-heavy Nasdaq 100 and especially the iShares Semiconductor ETF (NASDAQ:SOXX), which are currently off around 10% and 30%, respectively, from their all-time highs, while the S&P 500 is off just north of 3% goes to show that not everything needs to implode as some of the hottest, overleveraged corners of tech (most notably the AI chip stocks) look to give some of the meteoric gains back.

Of course, if stocks continue to tumble, an opportunity to buy could open up for those willing to brave the rough waters. For now, I think staying diversified and not getting too aggressive with dip-buying in names that have more than doubled up year-to-date is the way to go. Indeed, the faster they climb, the more room they have to fall.

The semiconductor industry is the new pain trade

With a name like Sandisk (NASDAQ:SNDK | SNDK Price Prediction) crashing more than 35% in the past week, those who got the timing wrong are surely feeling it. Either way, investors don’t need to play in these intensely volatile areas, especially as early signs of an AI correction (or maybe something a bit worse) look to play out in this second half.

While I wouldn’t treat Jim Cramer’s words as gospel, I do think he raises some very good points. A bit of caution and preparedness for a rainy day is never a bad thing, especially in the midst of a roaring bull market, one that might be a bit too quick to shrug off the growing lists of risks (the war in Iran, inflation, and the risk of rate hikes) that might just be fuel for a painful correction.

Staying the course, staying diversified

Whether it’s Jim Cramer’s cautious tone or Jamie Dimon’s more worrisome remarks on the state of the market, I do think that the best thing to do at a time like this is to hang on for the ride and trim away at the at-risk areas (most notably the semi stocks) while one is still in the green.

Does that mean that the AI trade is done and the semi cyclical upswing is over? Probably not. But if there’s an industry overdue for a dive, it’s the semis. And I think the entire market doesn’t need to be dragged down, especially the AI CapEx-light companies that still stand to benefit from the technology in a massive way.

The first thing that comes to mind are the banks and Apple (NASDAQ:AAPL). Of course, you’ll pay up for shares of the iPhone maker, which now goes for over 41.0 times trailing price-to-earnings (P/E), the highest it’s been in recent memory.

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