Jim Cramer could only explain the stock market's drive to roar higher as investors tapping in to their "animal spirits."
"In the big picture … the excitement stemming from Trump's pro-growth agenda and his business-friendly cabinet picks are producing are getting us to act, to buy stocks when we would otherwise be too circumspect to do so," the "Mad Money" host said.
The idea of animal spirits was coined by John Maynard Keynes, who Cramer described as "history's greatest economists" and investor. In Keynes' 1936 book "The General Theory of Employment, Interest and Money," he defined animal spirits as "a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits."
The truth is animal spirits have been oozing from stocks ever since Trump won the election. Investors have been in a euphoria driven by Trump's agenda of lower corporate taxes, a holiday from taxing the repatriation of overseas assets and deregulation.
Companies used to be able to cut costs or buy back stock to engineer an earnings beat in the absence of real revenue growth. The market no longer cares for this kind of an engineered beat anymore, Cramer said.
"We have judged them to be superficial and we hunger for the kind of accelerated sales growth that could be created by deregulation and a faster expansion of the overall economy … Consistent economic growth could produce a very different mindset among business leaders, which would feed on itself," Cramer said.
In other words, stocks are moving because of feelings, not numbers. The market would be in a different place if it was determined by the weighted average of quantitative benefits. The dollar is soaring, and yet investors don't even seem to care.
"Looking at the numbers, the market has actually done pretty well under Obama, but, again, this is not about the numbers, it is about the narrative we tell ourselves," Cramer said.
Investors view Obama as being indifferent to business, Cramer said, while Trump's policies are viewed as pro-business and pro-growth. That narrative is important because companies and investors behave differently when they think the President has their back.
Darden, the parent company of Olive Garden, reported in-line earnings with lighter revenues than expected and disappointing same-store sales on Tuesday. Darden actually did worse in November than it did in October. Usually that would prompt the stock to be downgraded and fall. Instead, it moved slightly higher.
"It would be one thing if this has never happened before. But Keynes wrote about these animal spirits overriding mathematical and evidentiary concerns back in the 1930s, and this is far from the first time the market has hit new all-time highs because of animal spirits," Cramer said.
In the end, if someone sells their position on the Dow, there will always be a buyer. The reason may not always matter.
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