Sometimes Jim Cramer can see a drastic difference between what occurs in the real world versus the stock world. Raw emotions and fear can drive stocks to new levels, as was seen on the averages this week with its wild swings.
One of the great underlying themes of this market for Cramer is the housing market. The rising price of homes and consumer desire to invest in their homes are a great foundation for a solid investing platform.
Cramer loves the housing group because it punches above its weight. Meaning, while it is only about 10 percent of the U.S. economy, its ripple effects can be seen all over the place ranging from retail, banking and real estate sales to title insurance and document processing.
"When you're dealing with a market that's still very treacherous because of Chinese weakness, even after today's rebound, you need to search for bullish groups to take advantage of the flow of funds out of suspect areas and into positive ones," the "Mad Money" host said.
For example, right now a portfolio manager may take a look at what is happening in the world and want to underweight stocks linked to the struggling mineral and resources group and overweight stocks linked to the home.
Cramer can see the positive signs in the housing industry just by looking at the household formation numbers in the U.S. These numbers have been well below normal ever since the Great Recession, and have begun a secular trend that he believes could stay in place for a long time. Household formation is difficult to reverse.
After the Great Recession there was also a dramatic decline in the number of housing starts. Data showed that it hit levels not seen for the past 50 years when it dropped to 500,000 from 2.1 million in 2005.
However, this year is on pace for 1.2 million housing starts. While that is still below the historic norm of 1.5 million, Cramer thinks this could be a good sign.
What really tipped Cramer off the housing edge was when he heard what Best Buy and Toll Brothers had to say this week. Many analysts found Toll's numbers disappointing relative to expectations, and Best Buy performed much better than expectations. It was the commentary from both companies that Cramer found stunning.
First the CEO of Best Buy, Hubert Joly, confirmed that the overall consumer demand for technology products and services were driven by large themes such as population growth, the housing recovery and healthy living trends.
The CEO of Toll Brothers, Doug Yearley, echoed Joly's analysis when he stated on the company's conference call that the housing recovery was built on a solid foundation. Ultimately he expects a long-term steady acceleration in the health of the housing market.
Even Bob Toll himself had positive commentary when he stated that as the employment landscape improves, greater demand should lead to rising home prices.
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So despite the fact that Toll Brothers stock was slammed this week, both Best Buy and Toll Brothers gave Cramer the impression that housing is the place to be even if there is a small rate hike.
"The forces are in place for a multi-year move, despite what the stock market might seem to be saying," Cramer said. (Tweet This)
A terrific sector to keep on the shopping list to buy on weakness the next time the averages take a run downhill.