The month of June has notoriously known to be an ugly one, with the Dow Jones Industrial average going negative 80 percent of the time in the past decade. Jim Cramer wondered if investors were just whistling past the graveyard on Monday with the Dow closing just slightly in the green.
Does this mean that the market is too expensive, and we are skating on thin ice?
To find out, the "Mad Money" host took an in-depth look at this concept to see if it adds any value to the investment process.
Typically, one would value the entire stock market by looking at what investors are willing to pay, called the price-to-earnings multiple. Right now, the S&P 500 is trading at about 18.5 times earnings, which is a bit high versus historical norms.
But what does that number mean anyway? Cramer has seen stocks trade at 29 times earnings and at 12 or 13 times earnings, back when there was a lot of inflation. We can't look at this number in a vacuum.
"This entire notion of 'the market' is something I balk at. When we talk about the market, we are dealing with a construct that can be very misleading," the "Mad Money" host said.
In reality, the stock market is just made up of pieces of paper that represent ownership interest in various companies. Some are expensive, some are cheap and some are in between.
For instance, there is the world of mergers and acquisitions, which has taken the market by storm lately. Three months ago specialty semiconductor company Altera sold at 25 times earnings. Then, on Monday morning, Intel announced that it would pay $54 a share in cash for Altera, and now it only sells at 40 times earnings.
Some might think that Intel made a ridiculous overpay for Altera and that the deal doesn't make any sense. But Cramer has a hunch that the CEO of Intel, Bryan Krzanich, might know about it.
Ultimately, regardless if the market is overvalued or not, there are plenty of situations out there that could appear expensive but are worth a lot more than investors thought. In Cramer's opinion, that's just how it should be.