Jim Cramer watched as the hatred of drug stocks has become so strong on Tuesday that it finally brought down the entire market. Now the question remains, will the sickness of the drug group that is infecting other stocks ever get better?
"There are many sectors that matter to a market, sectors that can take down everything if their declines are violent enough," the "Mad Money" host said.
Cramer has seen the banks clobber the market, tech take down everything and industrials give stocks a beating. But it was the knockdown move in health care that took his breath away.
In his perspective, this is a lesson to investors that one of the great leaders of this period, medicine and biotech, can behave just as badly as oil stocks sometimes. Even worse, the illness in the biotech group is no longer restricted to just high-growth members of the group.
"In short, biotech has become a pariah and it is infecting everything," Cramer said. (Tweet this)
Some investors believe that the biotech group began to roll over when Hillary Clinton's tweet sparked conversations of price gouging in the industry. But in truth, Cramer saw the big downturn start when many of the developmental stage biotechs with no earnings started to peak. They had too many IPOs and secondary offerings.
Many of the drugs that cost a lot of money are called orphan drugs. They are created for a small group of people suffering from rare diseases. However, these medications are often alternatives to death or an extremely expensive lifetime maintenance that would be far more expensive than these high-priced drugs.
So, is the era of high-priced drugs over?
"I think there will be some companies that won't be able to pass along onerous markups, but really, we are in a 'when the smoke clears' situation where the smoke is headline risk," Cramer.
The real problem is that the smoke has now spread to other portions of the health care group that have nothing to do with higher drug prices at all. Companies like McKesson, AmerisourceBergen and hospital stocks all took a beating.
At this point, Cramer thinks the downdraft of biotechs that are crushing companies not related to high drug prices is getting a little absurd.
"This kind of selling is way overdone, and it smacks of wholesale liquidation of anything that has higher growth than other cohorts," Cramer said.
Read more from Mad Money with Jim Cramer
Ultimately, Cramer says that the biotech infection is just a localized infection and nothing more. That doesn't mean it won't do damage, because it can. However, it also does not mean investors won't make money if they start buying health care stocks now.
Looking back, every time Cramer has seen a squall like this one, stocks will eventually get so cheap versus their growth rates that investors will have to act.
"I believe we are real close, if not there already," Cramer said. (Tweet this)