Published: March 2nd, 2021
If stocks slide and interest rates go higher, the markets might witness another round of tsunami selling, at least according to Jim Cramer. The American television personality, who hosts Mad Money on CNBC, said if the markets do not yield an ugly set of numbers, stocks are in trouble.
After a week of volatile stock trading, investors are looking forward to the labor markets data to be released on Friday, March 5. The numbers and the dwindling cluster of quarterly earnings would set the tone for much of the trends the stocks and commodities will take for the rest of March.
The February jobs report from the Labor Department will offer a clearer insight into the country's labor market's recovery, especially after back-to-back disappointments from the two previous months. Besides, it could point to the actual rate of economic recovery.
Consensus economists expect the non-farm payrolls to climb by 150,000 in February, increasing from an unenthusiastic 49,000 jobs recorded in January. The overall unemployment is expected to settle at 6.3%.
However, Cramer said that if the number rises, it would probably be because of the rising labor force participation, especially as unemployed Americans heighten their job searches due to the expected increase in the number of businesses set to reopen.
The December and January figures pushed out more of the service-related jobs because the resurgence of COVID-19 cases around the holidays compelled some locations to impose new social distancing restrictions.
In the two months, leisure and hospitality payrolls bid bye to more than a million jobs. December, the harshest of the two, saw the industry shed some 900,000 jobs, while January was subtle with about 61,000 jobs wiped off.
Despite the not so hopeful diagnosis, the TV personality said he is encouraged by the trading activity he witnessed among tech and growth stocks on Friday, February 25, even as markets grappled with the possibility of rising inflation.
However, Cramer warned that investors should watch keenly how the markets respond to the February payrolls report. He said that if the markets get an indication of strength, any strength at all, markets should be wary.
Cramer said that investors should anticipate a tsunami of selling due to the strength since stocks are likely to dip while interest rates climb. He predicts that a critical interest rates measure in the bond market is likely to shoot up.
The Mad Money host said the markets' only respite now is an ugly set of numbers since it is the only precondition that eliminates the element of doom for growth stocks. His remarks came after the markets saw off the second consecutive week characterized by peaked selling in the bonds markets and a domino effect spilling over to stocks.
The Dow Jones Industrial Average closed the day's (Friday, February 24) session almost 470 points lower, spilling 1.5%. Overall, the index stood at 30,932.37, declining by 1.78% compared to the previous week.
The S&P 500 index bled almost 0.5% to stand at 3,811.15, down almost 2.5% the previous week. However, the Nasdaq Composite ended the day almost 0.6% up. Despite the tech-heavy index's marginal gains, it declined almost 5% week-on-week to close the week at 13,192.345.
Nasdaq's rebound on Friday, February 25, resulted from the resurgence in Big Tech stocks. Cramer said he is not sure that the growth names can withstand whatever pain the market throws at them. However, he added that the week's trading trends give the markets some dash of hope that they can scrap some minor gains even under the harshest circumstances.
Cramer said investors who are not ready to bear the pain if it does come should consider using these moments in the Nasdaq and take some profits. Alternatively, they can prepare themselves for stocks such as Costco, the TV personality added.
Tools that measure various aspects of the markets seem to agree with Cramer's assertions. The 10-year U.S. Treasury bond yield, which is the critical measure for consumer loan interest rates, declined by almost 1.5% on Friday, February 25. The drop followed a marginal surge of about 1.6% the previous day, the first time it gained by such a margin this year.
Cramer said that when rates go down, the big industrial stocks will lose momentum. He said that the Dow's current decline is a manifestation of this general rule. However, the presenter said stocks of semiconductors, clouds, and cyber-security companies had defied this principle. Bond investors shorting their positions are betting on a Federal Reserve rate rise, he said.
The change in Fed's approach could bring the rates from near-zero. However, this is only likely to happen if the signs of an economic rebound are evident.
Already, some traders say the expectations for a rate increase have gotten too aggressive, making now the right time to buy.
Cramer said inflation is the biggest nightmare for bond owners. No one wants to hold a piece of paper that pays 1.5% when inflation could breach 2%, he added. In such a situation, the TV show host said bond owners lose every day.
He said the fear of bleeding is the reason people dump bonds. Unfortunately, such wholesale selling always has a way of smashing the stock market, Cramer added.
Although he is not so hopeful about Q4 earnings, he bets Zoom, Target, Nordstrom, Dollar Tree, Costco, and Kroger will smash expectation. However, he is unsure about American Eagle Outfitters, Wendy's, and Lemonade, whose earnings per share he predicts to be nothing more than cents. If the sell-off comes, the counters above might attract decent buys, the TV personality concluded.
A renowned TV show host is warning that the coming weeks may witness massive sell-offs, especially if the figures coming out of the markets are not downright ugly. Jim Cramer, who hosts Mad Money on CNBC, said bond investors are very jittery that the Fed Reserve rate decision might trigger wholesale dumping of bonds that might spill over to the stock markets.