Next week, it’s all about the Fed.
Cramer dedicated his Game Plan tonight to the best ways to play what he sees as the three possible outcomes from the Tuesday, Sept. 18 FOMC meeting: no rate cut, a 25 basis point cut, or a 50 basis point cut.
It would be “Armageddon” if the Fed didn’t cut rates, Cramer said, and it’s a definite possibility. Yes, the central bank changed its policy the day after St. Louis Federal Reserve President Bill Poole said only a calamity could force the Fed to do so. But Cramer won’t count a hold, or even a tightening, out. If that happens, Cramer recommended buying defensive stocks into the huge sell-off that would ensue. Nothing else would be worth owning, he said.
Cramer wants to see a 25 basis point cut, but it might not be enough to appease investors worried about a recession. That also could lead to a sell-off. Then the strategy would be to wait for these investors to dump their holdings and start buying defensive stocks between 3 p.m. and 4 p.m., Cramer said. The next day it should be OK to buy tech, infrastructure and agriculture stocks.
Some might think that if a 25 basis point cut isn’t enough, then 50 basis points should do the job. But actually, a cut that big would only signal that the Fed is truly worried about a recession. What happens then? Right, another sell-off. If the market goes that route, Cramer recommends waiting two days to make sure the economy isn’t going awry, then buy high-quality financials with high yields, adding that a 50 basis point cut should flush money of the sidelines and into the market. He likes Wachovia with its 5% yield.
The Fed’s action will have a big impact on how investors trader the brokers, which report next week, Cramer said. If Lehman Brothers gets hit, look to Morgan Stanley and then Goldman Sachs for the best opportunities.
Looking for a play that has nothing to do with the Fed? Adobe reports Monday after the close. Cramer likes the favorable product cycle, momentum and price. He recommends buying ahead of the quarter – as long as the stock doesn’t spike too much on Monday.
Jim's charitable trust owns Goldman Sachs.
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