Cramer says 'story stocks' based on far-off profits are in trouble here

Published Fri, Mar 5 20219:58 AM ESTUpdated Fri, Mar 5 202110:55 AM EST

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

CNBC's Jim Cramer said Friday investors should stay away from so-called story stocks that are years away from profitability due to rising bond yields. Equity investors are wrestling with the implications of higher bond yields, Cramer said on "Squawk Box," and "that means the paradigm is that we've got to go lower and we go lower in the stocks that some big fund managers like, which are these stocks of companies that are all based on 2030 numbers." Cramer's comments came shortly after the release of the February jobs report, which showed strong gains in the labor market and helped send the yield on the 10-year Treasury to a new one-year high. The Dow Jones Industrial Average also jumped following the jobs data, one day after a steep sell-off on Wall Street. "They're based on terrific stories, and the terrific story stocks are what's getting killed," Cramer added. "The story stocks are just forbidden. It's just impossible to own them. If the story stocks go up, you've got to trim them. You just do." The rapid rise in bond yields — which move inversely to prices — comes as investors are expecting strong U.S. economic growth as pandemic-era restrictions are eased. At the same time, some market players fear that robust economic expansion could bring about concerning levels of inflation . Growth stocks are seen as particularly vulnerable to rising bond yields because it raises the cost of borrowing money needed to help fuel business expansion. A story stock is one that investors have rallied behind with optimistic projections for its business. Sometimes, a company may be prerevenue and shares often trade on incremental news rather than financial fundamentals. Thursday's sell-off on Wall Street came after Federal Reserve Chair Jerome Powell 's comments failed to ease investor concerns about how the central bank would respond to the move in yields and inflation expectations. Powell acknowledged there could be a pickup in inflation as the economy reopens, but he did not give strong hints that the Fed would alter its current policy approach. "When you look at other periods of inflation scares, people are very upset stocks are down 20%, 25%," Cramer said, while adding that "30% to 40% is where they go, but they do tend to have a bounce and then they go. So you have a bounce. If you're really bearish, take advantage of this." The "Mad Money" host made the remarks as stock futures indicated higher opens for the Dow, S & P 500 and Nasdaq Composite . The Dow fell 1.1% Thursday while the S & P 500 and tech-heavy Nasdaq declined 1.3% and 2.1%, respectively. "I don't trust this market because what I saw yesterday was a sense that a lot of the big popular favorite tech stocks and SPAC stocks that we talk about, they're poison," Cramer said. "You can't just un-poison the well in one session." Cramer also issued a warning about high-multiple stocks Thursday , saying he thought industrial companies that would benefit from a strong economy such as, Ingersoll Rand , Parker Hannifin and Boeing were attractive places for investors to be.

Jim Cramer

Scott Mlyn | CNBC

CNBC's Jim Cramer said Friday investors should stay away from so-called story stocks that are years away from profitability due to rising bond yields.

Equity investors are wrestling with the implications of higher bond yields, Cramer said on "Squawk Box," and "that means the paradigm is that we've got to go lower and we go lower in the stocks that some big fund managers like, which are these stocks of companies that are all based on 2030 numbers."

Cramer's comments came shortly after the release of the February jobs report, which showed strong gains in the labor market and helped send the yield on the 10-year Treasury to a new one-year high. The Dow Jones Industrial Average also jumped following the jobs data, one day after a steep sell-off on Wall Street.