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In this strange moment for stocks, investors should hope to see bad news about the economy, CNBC's Jim Cramer said Tuesday after the major averages traded sharply higher following weaker-than-expected economic data.
"Bizarrely enough, the best thing for this market would be getting some disappointing news from the non-farm payroll report on Friday," Cramer said. "At this point in the business cycle, the point where the Fed is chomping at the bit to keep tightening, we actually want bad news."
The "Mad Money" host's reasoning was simple. The Fed is bent on raising interest rates once more in December and three more times in 2019, a plan that Cramer has argued could slow the U.S. economy.
But if the central bank's leaders were to start seeing more muted economic data, they might consider pausing their aggressive rate hike agenda and using the data to decide when to raise rates.
Cramer pointed to Tuesday's S&P Case-Shiller 20-city housing index, which rose 0.1 percent year over year, the lowest annualized increase in 20 months. That helped send stocks higher as investors weighed the possibility of the Fed standing down.
"You need to understand that every single piece of data is now being scrutinized through this good-news-is-bad-news prism, where weaker data now drives stocks up and stronger data sends us lower," Cramer explained.
At the same time, the Paychex/IHS Markit Small Business Employment Watch results showed increasing wages but decreasing job growth, meaning workers are getting expensive and companies aren't hiring as much.
"But before you get too excited, The Conference Board's consumer confidence index just rose to an 18-year high — some unfortunately good news that gives [Fed Chair Jerome] Powell more ammo," the "Mad Money" host said.
Cramer's bottom line? For stocks to go higher, the Fed needs to continue being affronted with "definitively mixed" data that makes the central bank second-guess its rate hike plans and become more data-focused.
"That allows Powell to put his rate hikes on hold after the next tightening in December — which I favor — because if the economy's already slowing, then he can say, 'You know what? The data's weak. Let's wait and see,'" Cramer said. "The more bad news we get, the more fabulous days like [Tuesday] we can have. Powell and his colleagues just need to be willing to look at the data to make a more thoughtful, prudent evaluation."