Don't Be Fooled By Market Gloom
“After today's miserable, horrible, stinking action, with the Dow sinking 268 points to 9,870, [and] the S&P to plummeting 3.1%, the market, it’s sending us a message,” Cramer said, “one full of doom and gloom.”
That market is saying that US job market remains – and will remain – poor. The market says that banks aren't lending, as they try to decipher the effects of financial regulatory reform. And despite an incredibly low 4.5% mortgage rate, home sales will suffer because the $8,000 tax credit expires June 30. For that matter, homebuilders will idle. The market says the auto industry is floundering because no one can afford to buy a vehicle, much less make them anymore. The US won’t export to China anymore. And low energy prices seem to indicate that we will never use energy in the quantities that we once did.
But Cramer disagrees.
Jobless claims have recently declined, he noted, and we might actually reverse the trend entirely if we got a job-creating stimulus. Banks actually want to lend, but they need some small businesses to lend to. There is a pent-up demand for housing, and with those low mortgage rates, sales could soon increase.
Also, homebuilders are constructing fewer homes than they were when the US population was half its current size. Given the decline in the inventory of homes, Cramer thinks that's unsustainable. Tuesday's Case-Schiller Index may have been inflated by the tax credit, but it is up from a year ago. And the Mad Money host doesn't think it will slip because more homes need to be built. Car sales are doing well, according to CarMax, and no automaker is furloughing employees. Plus, Union Pacific said car loadings are improving.
Cramer also saw positive signs elsewhere, like with China. He doubts the Chinese government would allow its currency to appreciate if its economy was sour. In the energy space, he said natural gas has had a big run and oil is barely down. Elsewhere in the markets, restaurant chain operator Darden said things are trending better when it reported earnings last week.
The Mad Money host can understand why people are frustrated with the economy. He thinks the markets will fall to Dow 9,700, where stocks will become considerably cheap. Therefore, he recommends "readying the shopping list," meaning investors should be prepared to buy.
"On a miserable day like today, it helps to be able to distinguish between what the market's reflecting and the actual reality," Cramer said. "Because the reality is actually much stronger than the stocks would indicate."
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