Cramer Explains Stock Market Decline

U.S. stocks closed sharply lower Thursday, as investors worried the decline in commodity prices suggests weak global demand, said Jim Cramer on CNBC’s “Mad Money.”


“The people who allocate capital to the stock market don’t like to see sudden declines in oil or copper or cotton or corn or interest rates, since all of those things suggest a dramatic decline in demand,” Cramer said. “Today was a day when lots of investors freaked out that there might not be enough end demand for everything that’s fashioned from commodities, not just the commodities themselves.”

Cramer isn’t buying into the negativity, though. In his more than 30 years of experience, he’s seen this pattern before.

“On day one of a commodity collapse, every stock goes down, aided by calls to short the market because of worries about a slowdown like the one that came out of Goldman Sachs today,” Cramer said. “On day two, we begin to figure out where are the winners and we stop selling them. By day three we actually pick at the winners, which, as we know, far outnumber the losers when commodity prices come down.”

Interestingly enough, though, the market didn’t fall Wednesday even though Fed Chairman Ben Bernanke said the economy is much slower-than-expected. The stock market seemed to ignore that commentary, Cramer noted. It reacted with the vengeance to every bit of bad news released Thrusday, though, and Cramer said he understands why.

“It’s in a sour mood about this country where, despite Ben Bernanke’s best efforts, Washington is doing nothing to create jobs, build new buildings, or even give us clarity on taxes for next year,” Cramer said. “The mood is justified.”

After all, the stock market had been going up on the belief that policymakers would take action to fix the economy. If they aren’t doing anything, then Cramer thinks the market is in trouble. He reiterated that it’s perfectly reasonable to take some profits after the market’s big run. Investors shouldn’t sell everything, though, he said. There are still plenty of stocks that will thrive in today’s environment.

Read on for Cramer's Top Dividend Stocks

Call Cramer: 1-800-743-CNBC

Questions for Cramer?

Questions, comments, suggestions for the Mad Money website?