CNBC’s Jim Cramer urged long-term investors to stay calm during Thursday’s stock market plunge, saying inflation appears to be peaking.
“Good deals are being created by this panic,” Cramer said at his investment club’s “monthly meeting.” “If you have money like we do… it’s time to put more money back” in the market.
Stocks were crushed by worries about runaway inflation and whether the Federal Reserve was doing enough to eradicate it.
“We’re not panicking,” Cramer said. “Inflation won’t be like this in three months,” suggesting that Fed Chairman Jerome Powell may finally be able to stage a soft landing for the economy.
Thursday’s selloff, led by the Nasdaq’s more than 4% decline, comes a day after a major rally on Wall Street that was sparked by Powell ruling out a potential 75 basis point hike in upcoming meetings for now. .
Central bankers raised interest rates by 50 basis points on Wednesday, the biggest hike in two decades. The Fed raised rates by 25 basis points in March, the first hike in more than three years.
At his press conference after the May meeting, Powell also said 50 basis point hikes may be needed at the next two meetings in June and July. Rate increases are also seen at meetings in September, November and December.
Cramer said he believed the intensity of Thursday’s equity selloff was tied to continued bond market selling, which pushed the 10-year Treasury yield solidly above 3% at its highest levels since 2018.
Bond yields move inversely to price.
Bond investors are likely selling their holdings, Cramer suggested, as they think Powell was wrong to say the Fed is “not actively considering” a 75 basis point hike as the economy faces its strongest surge in inflation since the early 1980s. Movements in the bond market in turn trigger selling of stocks by algorithmic traders, Cramer said.
“We believe that no matter [Powell] mentioned. What matters are the machines, those machines that are ready to trade a bond and we broke through a 3% gap on the 10yr. The machines know we’re testing Powell’s decision to go against 75 [basis points]”Cramer said.
However, Cramer said he takes a different view and that’s why he remains constructive during the carnage. “We see too many cases where inflation is falling,” Cramer said, citing the pullback in copper and aluminum prices as two examples.
Energy prices are expected to remain high due to the ongoing Russian-Ukrainian war, Cramer acknowledged. On the other hand, Cramer said rising mortgage rates should cool the housing market, and he added that there were signs that demand for used cars was also declining. “Inputs for inflation are down,” he said.
Earlier Thursday, Cramer put his money to his mouth, initiating a position in beer, wine and spirits giant Constellation Brands (STZ).
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