Wall Street pros seem to be running for the exits, worried that the recovery has turned on a dime. "All went from being benign to pernicious in one week," said Jim Cramer. "Is that possible?"
It seems the market thinks it is.
On Thursday, the S&P 500 posted its worst two-day loss since November with the recent declines marking the first real sustained pullback this year.
Largely pros grew worried that further advances just aren't sustainable.
In part that's because new data dealt a blow to hopes that the euro zone might emerge from recession soon. In fact the data showed the downturn across the region's businesses unexpectedly grew worse this month.
Also, initial claims for unemployment benefits rose more than expected. And the Federal Reserve Bank of Philadelphia said its index of business conditions in the U.S. mid-Atlantic region fell in February to the lowest in eight months.
On top of that, just one day ago, newly released Fed minutes triggered speculation that the central bank may slow or stop buying bonds sooner than expected – yet another headwind for stocks.
All told, pros see every reason to sell.
However, as dour as sentiment has become on the Street, Jim Cramer just can't buy into the gloom and doom. "Can things get this bad this quickly?" mused the Mad Money host. "I think the answer is no. And I don't reach that answer lightly."
In fact, Jim Cramer thinks the Street may be making a mistake. That is, he thinks pros are listening too closely to what he calls noise out of Washington. And they're interpreting weaker than expected earnings far too negatively.
"I don't focus on the noise out of Washington," Cramer said, "Nor do I want to make too much of an issue out of the downbeat forecast from companies such as Wal-Mart."
Instead, Cramer said he firmly believes that fundamentals move markets and long-term themes in the market remain bullish – in fact, quite bullish.
"Let's start with my favorite theme, the renaissance in housing," Cramer said. Although the Street turned negative after Toll missed Street estimates Cramer reminded that Toll wasn't negative conference call at all.
"The business is stronger than it's been in years, with the company posting a 49% increase in orders, and a 57% increase in its backlog," he said. In many areas across the country, Toll Brothers is selling out developments faster than it ever has. How did people miss this stuff?"
Cramer also thinks autos will drive the market. "Here's another sector of the economy that got hammered in the great recession and is just now coming back," he said. "Amid all the negativity, did anyone catch that Ford's hiring workers to build more vehicles? You don't build more vehicles if you don't need them!"
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Another theme Cramer likes is the renaissance in banking. "We're beginning to get a glimpse that banks are starting to lend for commercial real estate, again a huge creator of jobs," he said. "Just two weeks ago we had HomeStreet on the show, a Pacific northwest bank with a stock that more than doubled in the last year. That's because, among other reasons, it's lending for big construction projects."
Cramer also sees aerospace driving gains. "I know, all you hear about is the Boeing battery problem for the Dreamliner. I have to ask you, though, how strong is the order book here that Boeing's barely declined despite the horrendous publicity?"
Don't forget Cramer's cheap energy thesis. "Sure, you're paying top dollar for gasoline right now, but natural gas is ridiculously low and we know from listening to American Electric Power, one of the largest power companies in America, that the drilling for oil and gas in this country is coming back strong. Again, not something that's going to go away on a dime."
Cramer also thinks M&A will drive stocks. "We yawned at today's merger, Linn Energy buying Berry Petroleum, a largely California based oil play, for more than $4 billion. That's on top of the Comcast—GE deal, the Heinz transaction, the Virgin Media purchase, the NYSE Euronext deal, the Dell take out, and so many other deals too numerous to enumerate," Cramer said.
All told, Cramer is all but convinced that the economy is alive and well.
"When I hear strategists say they are selling all of their stocks or putting out big shorts, I want to cringe. As long as big themes like housing, autos, lending, aerospace, cheap energy and mergers are intact, I wouldn't sell. It just doesn't make any sense to me. At worst, things are mixed."
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