AD 3
Add 1
Ad 2

Cramer on stock market plunge: There’s been a ‘happiness trade’ out of sync with ‘everything’

CNBC’s Jim Cramer said Thursday that the stock market’s recent rip higher was not reflective of actual conditions in the U.S. during the coronavirus pandemic. 

“There’s just been a happiness trade that has been out of sync with everything, whether it be hot spots in Arizona, or whether it be unemployment, or whether it be the higher price of food,” Cramer said on “Squawk on the Street.” 

Cramer’s comments came as U.S. equity futures pointed to sharp declines at Thursday’s open. The Dow Jones Industrial Average traded more than 900 points lower shortly after the opening bell. 

Stocks that had lately been surging on hopes of the U.S. economy reopening smoothly from the coronavirus, such as airlines and cruise lines, were down big. 

But now a few states, such as Texas and Arizona, are seeing an increase in Covid-19 cases and hospitalizations that alarm some experts, setting off fresh concern on Wall Street about a second wave of the virus.  

“I think there’s a lot of people who were in denial. People who say, ‘Listen, that’s what happens when you start testing more or the hospitalizations, they’re not really up.’ Well, that’s not true. The hospitalizations are up,” Cramer said. 

He said he believes the situation in these states may not get as severe as it once was in New York state and New Jersey, but contended investors cannot ignore the developments. “I think we have to watch it,” Cramer said. 

Earlier Thursday, the Labor Department reported there were 1.54 million initial jobless claims last week, a figure slightly better than what economists polled by Dow Jones had expected. It marks the 10th straight week of declining initial claims since mandated business closures due to the coronavirus pandemic wreaked havoc on the U.S. economy. 

The S&P 500 is up more than 40% from its virus-driven lows in late March. More recently, the rally had been propelled by stocks that were particularly sensitive to the reopening of the economy. For example, American Airlines is up more than 65% in the last month.  

Cramer argued that retail investors who were day trading have been a driving factor in pushing these types of stocks higher. A notable portion of these people are trading on margin, meaning they’ve borrowed money from a brokerage firm to make an investment, he said. 

“If we continue to think that this market is being run by people who trade through Goldman Sachs, we’re fools,” the “Mad Money” host said. 

For that reason, investors should not necessarily panic about Thursday’s market declines, Cramer said. “I think you just kind of have to let it come down and see whether there’s anything left of the day traders after they have their margin calls.” 

Disclaimer

Leave A Reply