Wall Street saw a "sea change" in investments after a round of good news triggered investors to buy up cyclical names that many have recently fled from, CNBC's Jim Cramer said Thursday.
The Dow Jones Industrial Average advanced more than 300 points, along with 1.30% and 1.75% rises in the S&P 500 and Nasdaq Composite, respectively. The averages moved higher on positive economic data, including stronger-than-expected results in August ADP payroll additions and July factory order growth, and renewed optimism in U.S.-China trade negotiations, the "Mad Money" host said.
"The bottom line is that nothing much has changed" as prior trade talks have failed and good data have been followed by weaker numbers, Cramer said. "But there's one big difference: Maybe some ... commentators will ease up on the desire to endlessly call for a recession, at least for a couple days. Unless, of course, the nonfarm payroll report stinks up the joint tomorrow, in which case" look out below.
Shares of Union Pacific rallied nearly 4%, despite management reducing full-year forecast for rail shipments the day prior, which Cramer said was a casualty of the U.S.-China trade war. Honeywell, 3M and Caterpillar also traded higher as much as 3%, although many investors think those companies are more levered to the Chinese economy than in reality, he said.
Walmart, Amazon, Target, Costco and Home Depot — Cramer's WATCH group of large retailers — all made gains because "the big five retailers have too much power for the tariffs to cause them serious problems."
There was a "bifurcation," or separation, in the tech sector, Cramer said. The cyclical companies that depend on a growing economy rose on the market, while the secular names that will do well in either a strong or weak economy saw their stocks initially fall on those developments, though they managed to bounce back from big losses, he noted.
On Thursday, China and the U.S. both revealed that top trade negotiators had spoken that morning and plan to hold meetings in Washington, D.C., next month.
"These talks sounded substantive enough to ignite the cyclicals today, a group that's been lagging the overall market pretty badly because people were worried about a trade war. Same with commodities," Cramer said.
ADP and Moody's Analytics released a report that showed companies added 195,000 to private payrolls in August, well above the 140,000 that economists surveyed by Dow Jones anticipated. The number topped the 142,000 increase in July and was the best result since the 255,000 recorded in April. More than half the new jobs were in education and health services.
The Labor Department will release its closely watched jobs report on Friday, which could tell a different story than the numbers from ADP, the largest player in payroll processing. The nonfarm payroll report showed that the economy added 164,000 jobs last month.
The Commerce Department on Thursday also said that manufacturing orders rose 1.4% in August, which was ahead of the 1% that economists polled by Reuters were expecting. That's nearly a full point higher than what was recorded in June. With those stats increasing, Cramer said he isn't sold that a recession is looming.
"The combination of these positive data points allowed long-term interest rates to shoot higher," he said. "Everyone's worried that long rates are too low — that's the big warning signal that a recession's supposed to be inevitable. When long rates go back up, that tamps down on the slowdown chatter and allows stocks to rally."
Disclosure: Cramer's charitable trust owns shares of Amazon, Home Depot, Honeywell and Caterpillar.