CNBC's Jim Cramer on Thursday said the banking sector reported positive earnings results over the past week and that the stocks remarkably were able to rally on the news.
"The big takeaway from the major banks is that the group is doing better than we thought and even after this latest leg higher, many of these stocks remain dirt cheap and getting revalued higher almost every day since they reported," the "Mad Money" host said.
The big banks delivered their numbers between Friday and Wednesday. The rallies were led by big returns in J. P. Morgan Chase and Morgan Stanley, with 7.6 and 7.7% gains, respectively, Cramer said. Citigroup increased 7% on a decent report, while Bank of America and Goldman Sachs rose between 2% and 3%, although their results were not the most ideal, he added.
Wells Fargo, who is running without a CEO since the resignation of Tim Sloan last month, was the only major institution to see its shares fall. But Cramer said its 0.4% decline was not all that bad considering the stock dropped 2.5% after its earnings call last Friday.
"On the one hand, when the expectations get low enough, it doesn't take much to produce a strong result — that's been the case with many of these," the host said. "On the other hand, some of the major financials reported genuinely fantastic growth numbers and it's a wonder that they're doing that well during what should've been a less-than-stellar quarter."
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Thursday's session signaled that the market is "getting genuinely overexuberant" and the major averages could become wobbly if more IPOs become overvalued in the near future, Cramer said.
Pinterest and Zoom made a big splash in their debuts to public markets, while other unicorns like Uber and Slack, among others, sit in the pipeline. The Dow Jones Industrial Average added 110 points on the day, the gained 0.16% and the Nasdaq Composite inched 0.2%.
"If we get a few more of these red-hot, yet hopelessly overvalued deals ... the averages will start to feel the pressure," the host said. "That will lead to a sell-off like we haven't had in ages as investors dump existing stocks to raise cash for the next big IPO."
U.S. markets will be closed on Friday in observance of Good Friday. Cramer said a "crazy week" of trading will follow on Monday. Earnings season has been positive thus far, but it can be "crushed" by an "avalanche of new supply," he added.
As more than 100 S&P 500 companies report next week, the host warned not to trade stocks off headlines that look positive or negative because it's a losing strategy.
"Today we got the first taste of what I believe will be many more deals that are just too expensive for my taste. So keep that in mind," he said. "Even as I expect some terrific quarters buried in next week's cacophony of earnings reports, call me wary."
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Froth is a trading environment that usually precedes a market bubble.
"The top of the market always comes when there is tremendous euphoria, and today we saw that euphoria in the two deals that went off hot," he said.
Pinterest is selling at 21-times 2018 sales, not earnings, on the New York Stock Exchange. On the Nasdaq Composite, Zoom is trading even higher — 46-times fiscal 2019 sales, not earnings, Cramer said.
The host said he likes the prospects that each of these companies have, but the stock prices could be running in worrisome territory.
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Five Below, the discount chain of about 750 stores across the country, is testing out a more expensive format: Ten Below.
The concept pilot began in 2018 and, while the company has no plans to ditch the "Five Below" brand, CEO Joel Anderson told Cramer it is about bringing customers more value.
"We continue to innovate, and that's one of the areas we're innovating and testing higher price points," he said.
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The stock market trends could be preparing to shift, and it's important that investors diversify their portfolio to get exposure to different industries in order to keep making money, Cramer said.
"If you're diversified you will be the angler king, if you aren't, between the sharks and the seawater, I'll tell you what's going to happen: you're going down," he said.
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In Cramer's lightning round, the "Mad Money" host gives his thoughts to callers' favorite stock picks of the day in rapid speed.
Signet Jewelers Ltd.: "I think Signet's really gotta find its calling. It needs to find out its calling, 'cause it sure wasn't calling in that last quarter. We gotta wait."
Funko Inc.: "The reason why they're all over the place [is] 'cause they have some of the absolute best toys … I'm not just saying Funko's great because this is available in no store. But I have to tell you, I think Funko is gonna have a good quarter and I like the fact that they got that Disney calendar … So I say [buy]."
Marvell Technology Group Ltd.: "You know what. I'm partial to Marvell. I happen to like the board. I think they're trying to make something happen. [Buy]."
Disclosure: Cramer's charitable trust owns shares of Five Below, Citigroup, J. P. Morgan, and Goldman Sachs.