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Why the Markets Didn’t Rally on Debt Deal

Tuesday, 2 Aug 2011 | 6:47 PM ET
Cramer: Why Markets Didn't Rally
Mad Money host Jim Cramer explains why the markets didn't rally on this debt-ceiling deal.

President Obama signed the debt bill Tuesday after the final vote in the U.S. Senate, ending a months-long squabble between the White House and Congress. Yet stocks failed to rally Tuesday. Instead, the Dow Jones industrial average and S&P 500 index posted the longest losing streak since 2008.

There are several reasons the market didn't rally following the passage of the debt deal, Cramer said on "Mad Money."

First of all, nobody liked this deal, he argued. Those who wanted big spending cuts, for example, had to settle for less. People hoping for tax increases on the rich were also left disappointed, he noted. While better than a default, Cramer said the deal was simply hated by all.

Second, the budget battle came close to killing the U.S. economy, Cramer said. After surviving a "near-death experience," it's not surprising the markets didn’t quickly bounce back as though nothing ever happened.

Third, the market continues to hear about Europe's debt woes. It's hard to go a day without hearing about another default, Cramer said.

Fourth, the fast-growing countries of the world, like Brazil and India, are worried more about stopping inflation than promoting growth. That's exactly what we don't need, Cramer said, being as these countries buy a lot of goods from U.S.-based companies.

So what's the game plan going forward then? Don't get complacent, Cramer said. Here are his top trades:

To start, Cramer recommends homegamers own gold by way of bullion, gold coins or the SPDR Gold Shares exchange-traded fund.

Next, the "Mad Money" host suggests investing in stocks with great dividends, including Consolidated Edison , Southern Company and American Electric Power .

Cramer also likes the idea of investing in companies with foreign exposure, as to avoid worrying about Washington's shenanigans or poor economic data in the U.S. He likes high-yielding Canadian banks, as well as European phone company Vodafone being as it yields more than 7 percent.

Solid industrial stocks should also be bought, Cramer said. Consider Eaton or PPG Industries , which both yield about 3 percent, he said.

Finally, Cramer said investors can own a high-growth speculative company. He revisited F.A.D.S. C.A.N., a group of high-growth stocks that tend to be the hardest hit stocks on down days, but tend to bounce back furiously. The stocks in this group include F-Five , Amazon , Deckers , Salesforce.com , Chipotle , Apple and Netflix .

When this story was published, Cramer's charitable trust owned Apple.

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the Mad Money website? madcap@cnbc.com

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