Wall Street fell sharply on Monday, putting the S&P 500 index near break-even for June so far, as investors saw little reason to be optimistic about a European Union summit this week.
Expectations for the two-day summit, which starts on Thursday, are low after Germany resisted pressure for common euro zone bonds or a flexible use of Europe's rescue funds at a meeting of the region's four biggest economies last week. Markets remain sensitive to European headlines as the region's spiraling debt crisis could wreak further havoc on a slowing global economy.
The region’s debt woes have prompted so many stock market declines that many investors are ready to just sell everything, said Jim Cramer on CNBC’s “Mad Money.” Cramer thinks that might be a mistake, though. He cited several reasons he thinks investors should stay in the game.
To start, averting a Lehman Brothers-type event is the only thing European policymakers have accomplished thus far, Cramer said. That’s OK, though. As long as the Europeans toil with their debt problems, Cramer said investors can count on dividend-paying stocks with “domestic security,” meaning the underlying company has no exposure to Europe.
Second, the U.S. Supreme Court could overturn the health care reform law on Thursday. In Cramer’s opinion, the law is “expensive” because it would increase the cost of doing business. If the law is struck down, though, he thinks it would “take a huge amount of pressure off the U.S. economy.”
Third, Cramer said it’s a good thing that the price of oil continues to fall. After all, high oil prices had served as a “gigantic tax” on Americans consumers and corporations alike. So the decline in oil prices is like a “colossal tax cut,” he said.
Fourth, Cramer said that if investors sell everything now, they might not be able to get back in with tremendous ease. To illustrate his point, he noted that the market fell sharply after a disappointing jobs number was released. But shortly thereafter, the Dow Jones Industrial Average rallied 700 points.
“Now, I don’t expect that kind of run from these levels. I also think we have lots of selling going on that seems downright knee-jerk and programmed, keying off oil or the dollar,” Cramer said. “But unlike in 2008 and 2009, there are things that can be done to make the situation better.”
European policymakers could adopt a pro-growth strategy, for example, Cramer said. The Chinese could also identify long-term catalysts for growth, he added. Closer to home, Congress could take action to stimulate the U.S. economy, he said.
So what’s the bottom line?
“It’s easy to say get out now. It’s simply a fact that the market is miserable and many stocks are still too high,” Cramer said. “But to make some sweeping statement that now is the time to sell everything has been a big mistake during every one of these European inspired declines. Somehow, I’m not willing to bet that this time is different.”
—Reuters contributed to this report
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