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Cramer: 10 things to know about this selloff

Monday, 3 Feb 2014 | 6:02 PM ET
Emerging markets in severe downturn: Cramer
Monday, 3 Feb 2014 | 6:00 PM ET
Mad Money host Jim Cramer explores reasons for today's major sell-off on Wall Street.

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

No two selloffs are ever the same. And if you'd like to get through this one as unscathed as possible, Jim Cramer thinks there are 10 things you should know about it.

1. Selling is rampant because the Street fears a weak employment number on Friday. Of all the reasons behind the selloff, Cramer feels this is the most rational: "According to my proprietary research, one lousy employment number can be explained away, but not two." Remember, last time the economy added 74,000 jobs. Economists had expected 200,000. "We get something similar and you're going to hear a lot of talk about a dramatic slowdown," Cramer said.

Crowther & Carter | Stone | Getty Images

2. Pros are scared because defensive stocks are not rallying. "When the global economy slows, consumer staples and drug stocks are supposed to go higher. But they aren't, so people are getting really nervous that the safe havens are no longer safe," Cramer explained. "That's just a quandary."

3. Stocks that are rallying don't trade on conventional value. That is, this market is rewarding stocks such as Tesla and Twitter for growth potential. Yet it's only potential, and these stocks are extremely expensive when evaluated by conventional metrics. That kind of rotation can send conservative investors into cash.

4. Retail sales are monstrously horrible. "I can count on one hand the number of retailers that are doing well; most are just hoping for mediocrity," Cramer said. Investors want to know if the weakness is due to a challenged consumer or if some other catalyst is behind this phenomenon. Until there's clarity, Cramer doesn't expect the sector to attract much interest.

5. The Street feels aerospace has been called into question by Boeing's earnings report. This one makes no sense to Cramer. Boeing showed a net profit that beat expectations for the fourth quarter and the company projected that deliveries of commercial airplanes will surge in 2014. "There's absolutely no reason to think there's a slowdown here. Nothing. I really think this group is buyable."

6. The government is again looking like a source of woes for stocks. "Obamacare has seriously sapped the confidence of the business community," Cramer explained. "And the pullback in food stamps has been especially poorly timed. Just awful." Cramer says going forward investors should listen for chatter about the debt ceiling again. "I don't know how our government could be more out of touch," said a frustrated Cramer. Nonetheless, this headwind could grow worse.

7. A new chief is leading the Fed at the precise moment when the market wants an experienced hand. "Janet Yellen may be exceptional," Cramer said, but right now the market just doesn't care. As far as Wall Street is concerned, a bullish catalyst has been removed from the market, at least for a while.

8. Emerging markets are a giant question mark. "Right now the turmoil is so severe it's bleeding into the more developed countries," Cramer said. Pros are selling multinationals, fearing the worst. This may be an overreaction, however. In the past, Cramer has found that issues facing EM nations don't generate nearly as serious a ripple as feared.

9. Commodities are in collapse. Although lower commodity prices benefit consumers, currently the Street views weakness as a referendum on China. "A Chinese slowdown is just plain bad news for the stock market," Cramer explained.

10. Street isn't rewarding good earnings. "There have been many good ones, but they've gotten lost in the shuffle," Cramer said. If any headwind should die down, it's this one. Over the long-term, fundamentals drive the stock market.

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All told, the catalysts above are concerning. However, Cramer thinks they pale when compared to the Lehman collapse or the subprime crisis; the catalysts that triggered the serious market woes of 2008 and 2009.

Instead, Cramer reminds that "The U.S. remains the strongest of nations with the best natural resources in years and lots of opportunities." Looking ahead, he expects the headwinds to die down, and ultimately Cramer believes the selling will become exhausted.

Therefore he thinks it's time to make a shopping list. "Pick at your favorite companies," he said. "Many are selling at bargain prices."




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