CNBC’s Jim Cramer said on Wednesday he was still “attracted to owning stocks” even as the Federal Reserve aggressively raises interest rates in ways that some skeptics believe will send the U.S. economy in a recession.
“They probably sold in the rally today. They’ll sell tomorrow because that’s who they are,” the ‘Mad Money’ host said, referring to a late-session surge on Wall Street that saw the S&P 500 and the Dow Jones Industrial Average post their biggest daily gains since 2020.
Stocks rallied in response to the Fed’s widely expected half-percentage-point hike in rates, and Chairman Jerome Powell ruled out future hikes of 75 basis points.
The intensity and breadth of Wednesday’s post-announcement rally suggests some investors believe the Fed can thread the needle to rein in inflation with tighter policy without triggering a major economic slowdown. However, Cramer said he believed vocal Fed skeptics would not be swayed by Wednesday’s relief rally.
He acknowledged that there is uncertainty about the ultimate effects of the Fed’s 50 basis point hike. Before Wednesday, the last time the U.S. central bank raised rates by half a percentage point at a meeting was in 2000. Quarter-percentage-point hikes are the typical increase .
“So from tomorrow we will again be preparing for the worst and expecting the worst… and until fund managers are sure what they are, they will continue to sell things they don’t. shouldn’t,” Cramer said. . “But, if you’re on my side, you’re drawn to owning stocks here because there are plenty of companies that could do well, even if the more bearish camps turn out to be right.”
Cramer highlighted both individual companies and large sectors that he believes can operate from here, based on his economic outlook. For example, he said he likes Advanced Micro Devices, which has struggled so far this year but just posted strong earnings and guidance.
Financials are also well positioned, he said. “Remember, banks instantly become more profitable” when the Fed raises short-term rates, said Cramer, whose Charitable Trust owns two banks: Wells Fargo and Morgan Stanley. He was referring to banks’ net interest income, that is, what they earn on loans after subtracting what they pay customers on their deposits.
“You can also buy tech because tech stocks tend to do well once inflation peaks, but only profitable tech stocks please, because money losers don’t will not reach the promised land” due to rising interest rates, he said.
Disclosure: Cramer’s Charitable Trust owns stock in AMD, Morgan Stanley and Wells Fargo.
Register now for the CNBC Investing Club to follow Jim Cramer’s every move in the market.