Cramer Why He’s Not Worried About Aggressive Fed Rate Cuts

CNBC’s Jim Cramer tried to put to bed any fears on Wall Street that Wednesday’s 50 basis point rate cut was a negative move for the market, noting that such cuts are rarely bad news as long as they are expected on large scale.

“You have to know that a rate cut is never bad for stocks as long as it’s telegraphed,” he said. “A large rate cut, as long as it is communicated to the media well in advance in a considered manner, is also acceptable.”

Investors had been anticipating a rate cut for some time, with most convinced the Federal Reserve would issue a cut in September but uncertain whether it would be by 25 or 50 basis points. The Fed’s aggressive move may have spooked some — who were perhaps worried the big cut signaled serious problems with the economy — as stocks wobbled following the announcement.

By Thursday’s close, Wall Street appeared more bullish on the cut. The Dow Jones Industrial Average and the S&P 500 hit new highs — up 1.26% and 1.7%, respectively — and Nasdaq Composite increased by 2.51%.

Cramer said the Fed had laid a good foundation for the move, and in the days leading up to the decision many analysts were convinced a half-point rate cut was firmly on the table.

The rate cuts give investors official confirmation that they are no longer “fighting the Fed,” he continued, saying the cuts pump more money into the market, which is a positive. Cramer added that a double rate cut means even more money coming in from the sidelines. An easing cycle also produces winning stocks that are “varied and exciting,” he said, naming those in the homebuilding sector. He also suggested that Big Tech stocks are good buys here because business is strong, but their shares have taken a hit as Wall Street has poured into cyclicals in the run-up to the rate cut. The loss of inventory is also quite evident, he continued, calling packaged food companies “recession-proof.”

“As long as the Fed continues to orchestrate its cuts perfectly, as it has with this one, then your job is to know when you’re snowed in and take off a parka,” he said. “Get the negatives out of your head and you’ll be fine, because the Fed is now your friend. That’s all that really matters.”