Stocks discussed on the in-depth session of Jim Cramer’s Mad Money TV Program, Thursday, July 5.
Thursday was another day that the market did not show strength. This means investors should sell into market strength and raise cash. Why does Cramer think so? It’s the bonds.
The bonds are seeing a flat yield curve. This means that the difference between the 2-year treasury yield and 10-year treasury yield is less. When this happens, it’s a sign of an upcoming recession. “Normally, when the two-year’s at 2.5%, I would expect the 10-year to be at 3.5%. The two-year currently yields 2.56% and ten-year at 2.83%,” said Cramer. “That matters because when you have a flat yield curve, it does usually presage a recession. It’s a sign that investors are worried about the future,” he added.
“If the Federal Reserve were to raise rates again too soon, it’s possible that the two-year Treasury would indeed yield the same return as the 10-year,” Cramer noted. If the long-term rates don’t go higher, the banks will not make money on long-term loans and they form 20% of the S&P 500. The stocks of banks and homebuilders are benefited by higher rates, and yet, they are going down.
“Only some major selling of 10-year Treasurys – something I do not expect – or a pause from the Fed on rate hikes – something I don’t expect – would improve this picture,” he added. The other issue is Trump’s tariffs taking effect, and this could lead to retaliation tariffs, resulting into a full-fledged trade war. Hence, money managers are selling the homebuilders, industrial and automakers.
“Because I don’t expect the Fed to stop raising rates, large sellers of bonds to materialize or President Trump to change his mind about tariffs – regardless of the collateral damage