At some point during a big market rally, Cramer said Wednesday, the fundamentals of the money-management business outweigh those of publicly traded companies.
Something similar happened in 2009. Because of a terrible few months in the market – from September through February – the big money managers had shifted their holdings to cash and other defensive plays. But then the Dow roared upward starting in early March, leaving these managers behind. Fearing the loss of clients, and their jobs, they opened their coffers.
Money managers compare their performance with key benchmarks, such as the S&P 500, and falling too far behind the benchmark can cost them their jobs. That in turn kicks up their survival instinct and sends them rushing to the market to buy stocks. Managers by that point are in such dire straits that they have to buy whatever’s available. The funds start bidding at the slightest dip in share prices leads, and this buoys the market overall.
“When we’re in extremely bullish territory,” Cramer said, “expect pullbacks to be short-lived thanks to all the hedge-fund and mutual-fund buying they create.”