Mad Money

Cramer: This rally is all about the Fed—not stocks

Cramer: Downside to rate hike fathomable

Jim Cramer has spent a huge chunk of his 36 years of investing doing the homework and investing in individual stocks. He has always felt that individual stocks would lead to profit on the market. But these days, that methodology seems to have been thrown out the window.

"That's because many of the largest pools of actively managed money, the hedge funds, the high-frequency traders and even the big mutual funds are not focused at this moment on individual stocks," the "Mad Money" host said.

What are they focused on? The Fed.

Big money has noticed that the Federal Reserve has kept interest rates low, perhaps lower than they should, in spite of data that could suggest otherwise. Data such as the strong 3.7 percent gross domestic product for the second quarter suggest that if the U.S. were in a vacuum, then it is time for the Fed to begin to raise rates.

The Federal Reserve
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But the U.S. is not in a vacuum. So while the economy is quite strong the rest of the world is quite weak, with exception of Europe. Thus there could be detrimental impact to the global economy that could slow down the U.S. growth if rates were to be raised.

However, after the big selloff this week Cramer has noticed massive change in thinking of the Fed and those fears of a rate hike have subsided. He has heard several portfolio managers say that they can handle a rate hike. In fact, many just want to get it over with already.

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"I am sticking with my view that as long as the Fed is pragmatic it will make the right move in either direction—stand pat or raising rates—and I am far more confident that the impact will be more mild as long as they have assessed the situation and acted the way they have said they would," Cramer said.

Thus, Cramer thinks that the rally on Thursday was not due to portfolio managers celebrating that there will never be a rate hike. Rather, it was a "in Fed we trust" rally to confirm that investors trust the decision that the Fed will make.

"What a relief it is to know that the grownups not the ideologues are really in charge. This huge sea change is confirmation that I am not alone in my thinking," Cramer added.

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