The stock market rebound on Wednesday was yet another example of panic being replaced by rationality, CNBC's Jim Cramer said.
"We forget why people fled from high quality stocks in droves yesterday, even stocks that had nothing to do with Italy," the "Mad Money" host said. "For the record, that's pretty much every American company having nothing to do with Italy, aside from a handful of players."
The Dow Jones industrial average rose 306.33 points, or 1.26 percent, closing at 24,667.78. The ended 1.27 percent higher and the Nasdaq composite rose nearly 0.9 percent.
The action followed Tuesday's selloff on concerns about Italy's political uncertainty.
The euro zone's third-largest economy has been without a government since an inconclusive vote in March. On Sunday, President Sergio Mattarella refused to accept the nomination of a euroskeptic candidate for economy minister. Instead, he appointed former International Monetary Fund (IMF) official Carlo Cottarelli as interim prime minister, rattling global markets.
Cramer believes there are five reasons the market came back on Wednesday.
If you listened to the bears on Tuesday, it sounded like Wall Street was located in Rome, Cramer said.
However, "anyone who thinks that Italy is a functioning state with a real live banking system is kidding themselves," he said.
Italians want a better government and solvent, competitive banks, he added. But more importantly, they are "sick and tried" of a strong euro, which hurts the tourism business.
"That's the cause of the latest fracas: Italy loses far more than it gains from the euro—I think they'd be better off with their own currency—and they really don't like the EU's heavy-handed approach to just about everything," said Cramer.
Because of the strength of the U.S. economy, investors are "getting some incredible returns from great American companies that do most of their business domestically," the Mad Money host said
"Selling these stocks because of Italian woes is just as stupid as selling them because of the credit rating of New Jersey or Illinois."
The United States is "booming" in part because of its natural resource base, Cramer said.
While it's more concentrated in certain states not as spread out across the country as he'd like, it explains why the employment situation is robust, he added.
Doing business overseas requires navigating through a dense "thicket" of regulations. However, things are easing up in the U.S., Cramer said.
"Now that the Trump administration is slashing regulations left and right, or at least taking a very hands off attitude for enforcing the rules it can't get rid of, America has become an even easier place to hire people and grow your business."
What got Cramer so upset on Tuesday was that many combined the problems of Italy's banking systems with that of the U.S.
"There is one similarity: they both involve capital. But that's where the similarity ends because most Italian banks — and European banks for that matter — are radically undercapitalized, while our banks are insanely overcapitalized," he explained.
Wednesday's action was proof that selling on a European pullback is a mistake, said Cramer.
"America is not Italy. New York is not Rome. Our banks are not their banks," he said.
"It's easy to remember this stuff when we're rallying like today, but please try not to forget the next time we get slammed off of something that has nothing to do with the United States."