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Cramer: Tectonic shift in the market means buy, not sell, on a rate hike

Buy, don't sell, on a rate hike

In Jim Cramer's perspective, there is no denying that the market has undergone a tectonic shift. The market is doing better because business is better, both in the U.S. and overseas.

Stocks now have different catalysts than they used to, which means investors need to react differently if the Federal Reserve raises interest rates. Instead of dumping stocks on a rate hike, Cramer said to buy them.

"Business has momentum. This market is saying that momentum will not be broken up by three rate hikes, nor by the president, nor Congress. It is a rising tide that is lifting almost all of the boats, except those that did best under Obama," the "Mad Money" host said.

There are new rules to follow now, Cramer said. He outlined everything that investors must unlearn, so that the market can continue to power higher.

Federal Reserve Board Chairwoman Janet Yellen speaks about the Federal Reserve's semiannual report during a hearing of the Senate Banking, Housing and Urban Affairs Committee on Capitol Hill February 14, 2017 in Washington, DC.
Brendan Smialowski | AFP | Getty Images

In the past decade, any time Fed Chair Janet Yellen spoke about raising interest rates, the market would plummet. Those days are now over, Cramer said. It is time to recognize that if the Fed tightens while business is doing better, it will not be a disastrous move, but instead be the validation that the market craves.

Cramer also reminded investors that President Donald Trump is a pro-business president. While the stock market did rally under Obama, it was a different set of stocks. Now, it a completely different group stands to benefit, as stocks like Bank of America and JPMorgan continue to push higher. Bank stocks seem very cheap to Cramer versus the rest of the market.

"They are only going to get cheaper if Trump's deregulation allows them to return capital at their own pace and not the pace of the government," Cramer said.

The third rule to unlearn is that even though many investors think that stocks are undervalued, that doesn't mean it is the truth. When Cramer looked around the world, he saw that other markets are doing far better than the U.S. That is because their economies were even worse than the U.S. was to begin with.

So, these three new stock market rules mean that it is time for investors to throw away their old playbook and get ready for a rate hike. Rates must go higher because there is more demand for money, which means banks will do well. And a president who is pro-business could ultimately mean good things for business, too, even if his approach is a bit unorthodox.

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