Cramer: The real cause of the bank stocks' weakness isn't the yield curve — it's trade

  • CNBC's Jim Cramer deciphers what Monday's stock market action means for the stocks of major U.S. banks.
  • The "Mad Money" host says the financials are more affected by trade fears than many thought.

For CNBC's Jim Cramer, the biggest shocker of Monday's rally wasn't the Dow Jones Industrial Average's 300-plus-point climb or the market's ability to shrug off trade war fears. It was the bank stocks' performance.

The rallies in shares of J.P. Morgan Chase, Citigroup, Wells Fargo, Bank of America, Goldman Sachs and Morgan Stanley sent the financial sector up at least 2.5 percent. Monday marked the best day for the cohort since March 26, based on the SPDR S&P Bank ETF (KBE).

"There's nothing like a big up day to find out what's really going on," the "Mad Money" host said on Monday.

Until recently, much of Wall Street was writing off the bank stocks' weakness as a casualty of the flattening yield curve, Cramer said. Money managers were making the calculation that if interest rates were similar for long-term and short-term loans, banks would shy away from longer-term lending, a key line of business for the big banks.

"However, today’s stunning action suggests that China’s been weighing far more heavily on the banks than we thought," Cramer said. "We can only conclude that these stocks have also been caught up in the world trade woes."

Last Thursday, the United States and China exchanged $34 billion worth of tariffs on each other's goods, escalating their tit-for-tat spat to trade war levels.

The move put pressure on much of the market ahead of Friday's non-farm employment report from the U.S. Labor Department, which provided some momentary reprieve for stocks knocked off their highs by tariff worries.

But as the bank cohort rallied on Monday after several days of calm in the Washington-Beijing trade dispute, Cramer realized that the banks, too, had been dragged into the global economic conflict.

"That’s right, despite the fact that volatility from the ebb and flow of trade is good for the investment banks, it’s clear that investors perceive these stocks as being levered to the global economic expansion — same thing goes for the trading arms of the regular banks — and that expansion is jeopardized by tariffs and trade barriers," the "Mad Money" host said.

But Cramer wasn't exactly on board with that theory.

He said that Wells Fargo — shares of which rose 1.57 percent in Monday's trading session — had little international exposure and was primed for an "excellent" earnings report on Friday. He also highlighted Citigroup as a particularly good buy due to its 7 percent share buyback.

"The banks are the cheapest relative to their earnings I have seen in almost 40 years of investing," Cramer said. "What is the deal?"

"I don’t think people recognize how much money the banks can make in this environment or how well they’ve tended to trade after the Fed’s annual stress tests," he added. "My judgment? The big banks are all buys."

And even after Monday's rally, Cramer suggested circling back to high-quality prospects like these to find the ones trading at deep discounts.

WATCH: Cramer deciphers Monday's rally

Disclosure: Cramer's charitable trust owns shares of J.P. Morgan Chase, Citigroup and Goldman Sachs.

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