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Cramer: Cavalry Stocks Coming to the Rescue

(Click for video linked to a searchable transcript of this Mad Money segment)

On Thursday the S&P 500 posted its biggest daily decline since November 2011 as investors fled the market in droves, spooked by commentary from the Fed made earlier in the week.

The Dow Jones industrial average fell 353 points or 2.33 percent, to 14,758, while the S&P 500 fell 40 points or 2.49 percent to 1,588.

Although a bloodbath is nothing new on Wall Street, the aftermath of this nasty drubbing may be unlike anything investors have seen in quite some time.

For the past several years, after a sharp decline, the first stocks to attract buyers had been high-yielding defensive stocks -- what Jim Cramer calls bond-equivalent stocks. That is consumer packaged goods, health care stocks, telephone companies, REITs, and the utilities.

But with the Federal Reserve suggesting that it's bond buying program could begin to taper off as soon as the end of this year, higher interest rates are now squarely on the table. And that makes these bond alternatives far less attractive.

"All of these high-yielders have new found competition from bonds that are much lower risk," Cramer said .

Instead, Cramer thinks a whole other class of stocks will come to the rescue and drive the next leg of the bull. They are financials, tech and industrials. "Historically, these are all sectors that have done better as interest rates move higher," Cramer said.

Chuck Pefley | Stone | Getty Images

Financials: Banks often benefit directly from higher rates. "Banks make a lot of money lending, and when rates go up, they can make much more money on their loans than they pay you on your deposits," Cramer said.

Technology: Technology firms benefit indirectly from higher rates; that is, they benefit when they're a sign of economic strength. "When the economy goes south, businesses cut back on their tech spending. They don't upgrade. They don't buy anything new," Cramer explained. "But when things get better, they upgrade systems and use more hardware and software."

Industrials: Industrial companies also benefit indirectly; again, when higher rates are a sign of economic strength. "As business gets better companies wbuild more plants and use more equipment," Cramer said.

"Remember, this isn't the first time in history when rates have gone up," Cramer said. "It's happened many times before. You just might have forgotten about it, or not been familiar with what happens, because it's been so long since we've seen this leg of the business cycle."

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What's the bottom line?

In the past banks, technology and industrials have all rallied under similar market conditions. "And I believe they are all capable of leading the market again," said Cramer.

"Because of their risk profile—they aren't as easy to own versus the stocks that used come to the rescue— therefore it may take time for them to rally. But I believe they will and if you begin to rotate into these sectors strategically, the end result should will be well worth the effort."

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