Cramer: Are financials the key to a rally?

Can the financials give us real leadership?
Can the financials give us real leadership?   

The financial sector rallied hard on Friday, which made Jim Cramer wonder—could that mean other stocks will start to rally as well? Could they provide investors with real leadership in the market?

"Almost my entire lifetime as an investor, the answer would have been yes, the financials can be excellent leaders," the "Mad Money" host said.

Historically, banks climbing higher signals a strengthening economy. This group would be the catalyst for retail, autos, construction and all job-creating activities that would get the economy buzzing.

Not anymore.





Traders work on the floor of the New York Stock Exchange.
Lucas Jackson | Reuters
Traders work on the floor of the New York Stock Exchange.

Cramer no longer sees this correlation; these days, banks are simply indicative of interest rates going higher without any sign of actual demand for money. Meaning, the bullish action in the banks is just predicated on the flow of funds in and out of U.S. bonds based on what people think the Fed will do—not economic activity.

And, frankly, with exception of auto sales, jobs and the financials, everything else is weaker. That means exports, travel, leisure and retail are all weak right now because of the strong dollar. And an imminent rate hike will just take the dollar higher, which will cut exports even more.

So when is the right time to raise rates?

In Cramer's perspective the right time is when the economy has expanded beyond just autos and job growth. Additionally, May was a decidedly weaker month when it came to commerce. Thus, banks have no real desire to lend money right now and are terrified of regulators who will be all over them once there is an uptick in non-performing loans.

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Instead Cramer chalks up the strength in financials as a zero-sum rally because everything else, particularly the dollar sensitive stocks, went lower. Don't be fooled!

"So, take heart that a part of the stock market rallied hard today, but don't confuse that part with a stronger economy," Cramer said.

How will you know when the economy is getting stronger? Once important groups like transports and industrials are doing better, and the dollar gets weaker, the banks will no longer be an empty leadership suit.

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