With the S&P 500 having finally clawed back all of the losses from the March sell-off and now setting new all-time highs, you would expect the usual stock market cheerleaders to be in a celebratory mood. That’s why yesterday’s rant from Jim Cramer was unexpectedly…. honest.
“The S&P’s new highs are a tale told by an idiot full of sound and fury signifying nothing about the hardship of millions of people on food stamps or the millions about to be fired from service jobs or the homeless or the people who were just told to huddle at home and waiting for the vaccine. Which apparently feels a lot like waiting for Godot,” said the usually bullish Cramer
Stock Market and the State of the Economy
He said the stock market and the economy are two different things, and one has nothing to do with the other.
“We’ve had a magnificent v-shaped recovery in the stock market. But the stock market is not a good reflection of the broader economy any more. If anything the actual economy is in precarious shape,” said Cramer, “Especially now that the government stimulus package has run out and Congress went home for the summer instead of trying to come up with a replacement.”
He said if this were a true “v-shaped” recovery, all the stock indices would be climbing at the same time. Instead, the indices that have most of the high-flying tech stocks are doing well, while the indices with banking stocks, retail stocks and industrial stocks are still struggling.
“I heard… we’re having a v-shaped recovery. Wrong, wrong, wrong. Not just wrong, but actually laughable. In a v-shaped recovery the Dow Jones Industrial Average would be hitting new highs. But this move has been led by the Nasdaq and S&P… Today, the Dow Jones Industrial Average lost 67 points, even as the S&P advanced .23% and the Nasdaq gained a staggering .73%,” said Cramer
The stocks that are doing well are focused in one area, and that’s digitization. Cramer points out that this is a bad sign for the economy, as these companies are the ones that replace workers with technology.
“This move has been fueled by the biggest story of the COVID recession: digitization. And when we talk about digitizing the economy, you know what that’s shorthand for? Cut out the fat. With the fat being, alas, people that are part of the real economy. When you can’t afford to hire people, you bring in this brigade of software and hardware companies, and they do it for you. And they do it, let’s just say, in brutal fashion.”
He then points to stocks like Qualcomm, Paypal, AMD, Cadence and Nvidia as examples.
He says these stocks aren’t a play on a recovery, but the exact opposite. A struggling economy.
“The winners in this market are the companies that are most divorced from the underlying economy. They’re not plays on a v-shaped recovery. There isn’t one. They’re plays on a L-shaped economy that’s going nowhere without more stimulus.”