U.S. stocks ended in the red on Monday, but “Mad Money” host Jim Cramer said it had little to do with Europe’s sovereign debt crisis and more to do with heavy betting on S&P futures.
To make his case, Cramer pointed to Ross Stores. As an off-price retailer, Cramer said the Pleasanton, Calif.-based company benefits from strong demand for discount products and consistently reports solid numbers. Ross Stores operates more than 1,000 stores across the U.S., but still has lots of opportunity to expand in fast-growing markets, he added. It has zero exposure to Europe, too.
Nevertheless, Cramer said Ross Stores stock fell Monday simply because it trades on the S&P 500 index.
“There are huge fundsthat do nothing but trade S&P 500 futures,” Cramer explained. “When the futures are down, everything gets taken down with them except for stocks where there’s specific good news and Ross didn’t have any news today.”
The market didn’t always trade this way, though. Prior to 1983, stock futures didn’t exist. Many companies resisted the creation of stock futures, too, because they feared stocks would be controlled by the futures rather than the performance of the company. As it turned out, that’s exactly what happened, but Cramer said nobody cared because investors saw S&P futures as a great way to hedge. Instead of dumping all stocks on fears of an economic slowdown, investors could now sell a future and hold onto their stocks.