The worst trading day in decades gave investors a framework of what stocks can work in this messy market, CNBC's Jim Cramer said Monday.
Investors can get behind defensive stocks of companies that make consumer goods "we can't live without," the "Mad Money" host said. Defensive stocks can outperform the broader market during an economic downturn because there is constant demand for their products.
"Check out your medicine cabinet, check your refrigerator, look at your pantry," Cramer said, pointing out the stocks of companies that make products that can be found in the supermarket.
After the stock market triggered another circuit breaker in the morning — the third within a week amid the coronavirus pandemic — most stocks continued their downward trends, but equity in some consumer staples went the opposite way, Cramer noted.
"On a horrific day where the averages were down 12% to 13% ... we've got to stop buying average," Cramer said. "Instead, we should buy quality recession-proof stocks because that's what works when the economy's on hiatus."
As the coronavirus continues spreading across the United States, a growing number of states and communities ordered non-essential businesses to close or to reduce services. According to Johns Hopkins University, more than 4,280 people in the U.S. have contracted COVID-19 and 74 have died. Globally the count is more than 181,000 infected and at least 7,113 dead as of Monday afternoon.
Investors continue to grapple with how the outbreak could impact world commerce. States including New York, New Jersey, Michigan and Illinois have placed restrictions on public gatherings and on restaurants, bars, gyms and movie theaters, among other establishments. The San Francisco Bay Area instructed 7 million people to "shelter in place" to stop the spread in California, while Canada has closed its borders to noncitizens.
In a press conference during the last minutes of the trading day, President Donald Trump said it may take until July or August to get the outbreak under control.
The Dow Jones Industrial Average, after dropping more than 3,000 points, closed down 2,997 points, or 12.9%. The S&P 500 declined almost 325 points, or 11.98%, and the Nasdaq Composite tumbled 970 points, or 12%.
Investors can find opportunities to take advantage of, but they have to stay away from index funds, Cramer said.
"[T]he problem with the index funds is that you inevitably own both the winners and losers; and the difference between winners and losers has become too stark for that to make any sense," he said, thumbing his nose at airline, oil, restaurants, entertainment, retail, bank and tech stocks for being "too hard" to own in this environment.
"That's where the opportunity comes in, people. There are many industries that are truly on the ropes here, and I expect them to remain on the ropes for a long time, unless they fall flat on the canvas," he added.
"As for the losers, I say no more selling," the host said. "No more selling without a big up day like we had on Friday to get you better prices than you can expect into the teeth of the panic."
Disclaimer: Cramer's charitable trust owns shares of Clorox.