Wall Street continues to enjoy an upward trend on the market, but the investment community will get a better sense of the challenges that much of the economy faces when financial institutions begin reporting earnings next month, CNBC's Jim Cramer said Tuesday.
"I believe we'll see the beginning of the bad loans that could reverberate through the whole financial system," the "Mad Money" host said. "This weakness doesn't matter to Wall Street because small businesses aren't publicly traded and we've got a fabulous bull market in the cashless, contactless economy."
The comments come after the major averages turned in a positive trading session, powered by broad market gains. The Dow inched up 2 points to close at 27,995.60 during the trading day. The S&P 500 moved 0.5% to 3,401.20 and the Nasdaq Composite rallied for an outsized gain of 1.21% to 11,190.32.
Since falling into correction territory due to the recent market-wide sell-off, the tech-heavy index has slowly worked its way back up and is now down about 7% from its all-time closing high at the beginning of September. A 5% run would bring the benchmark S&P back to its past highs.
U.S. commerce appears to be improving, based on results seen in the transports sector, including FedEx's strong quarterly report, Cramer said. Furthermore, tech companies continue to put up positive numbers.
"The stock market doesn't care about small business. There's real rot underneath this economy, you just can't see it in the averages because the rot is unevenly distributed," Cramer said.
The bank stocks, which have lagged the market this year, were the anomaly as nearly all but a handful of stocks on the SPDR S&P Bank ETF, known as the KBE, ended the day in the red. Citigroup and JPMorgan Chase, both among the largest financial institutions by market cap, were two of the biggest losers as their share prices dropped 6.94% and 3.11%, respectively.
The drops in JPMorgan and Goldman Sachs, which fell 1.7%, hurt the 30-stock Dow.
Lawmakers in Washington have spent weeks debating over a new spending measure to give the U.S. economy another boost as many businesses continue to feel pain from the ongoing gathering limits and other restrictions put in place across the country to slow the spread of coronavirus. While a slate of companies have been able to benefit from the transition from on-premise to off-premise work and school, many businesses in the service-dominated economy continue to face headwinds. The unemployment rate remains above 8%.
House Speaker Nancy Pelosi signaled earlier Tuesday on CNBC that Democrats and Republicans may be able to reach a deal on new relief spending, but the odds are looking slimmer as the November election nears.
"Without a stimulus deal, there will be a ton of private-company losers and we could be in a much worse place a year from now, even if we get a vaccine approved by the end of the year," Cramer said. "Too many struggling small businesses can't wait that long."