CNBC’s Jim Cramer said Monday that Wall Street’s resilience in the face of escalating geopolitical tensions shows investors are focusing more on interest rates, a key driver of stock valuations, than on the Iran war itself.
“I think I was remiss in bringing up the power of low interest rates, because that’s why cows keep winning when you think they should be slaughtered,” the “Mad Money” host said. “Let’s not overthink it. If interest rates had skyrocketed, this market would be very different.”
Despite soaring oil prices due to supply disruptions through the Strait of Hormuz, S&P500 Cramer said the stock has rebounded in recent weeks to within 1.5% of January’s closing high, a move that bucks historical patterns. A sudden rise in energy costs typically weighs heavily on stock prices.
“But history is ignored and ignored,” he said.
That’s because Treasury yields initially spiked in the wake of the U.S.-Israel attack on Iran on Feb. 28, before reversing, Cramer said. This dynamic allows investors to continue paying higher valuations for stocks despite continued geopolitical risks. benchmark 10 year government bond yield The S&P 500’s lowest closing price this year was March 30th.
“Unless interest rates go up, the new Fed…certainly isn’t going to raise short-term rates, and they might be able to bless us with (a rate cut),” he said, referring to Kevin Warsh, President Donald Trump’s nominee to replace Jerome Powell as Federal Reserve Chairman. Powell’s term expires next month.
Cramer argued that while high oil prices are contributing to inflation, their impact on the broader economy may be less pronounced than in past energy shocks. Cars have become more fuel-efficient in recent years, and domestic natural gas remains much cheaper than overseas, an important advantage in keeping inflation relatively low.
“Natural gas, not oil, is our secret weapon,” he said.
That could affect the Fed’s response. Kramer said that while recent inflation figures have risen in part due to tariffs and energy costs, central bankers may treat those pressures as temporary as they consider future rate cuts.
“With any temporary price increase, the Fed will most likely mark these hikes with an asterisk,” he said.
For investors, Cramer’s key takeaway is that interest rates and their impact on stock valuations, not geopolitics, remain the primary driver of stock prices. When interest rates rise, investors typically want to pay less for each dollar of future earnings than they did previously, creating a phenomenon known as price-to-earnings compression.
“What does the Strait of Hormuz have to do with the stock return ratio?” bristol myers“The answer is nothing,” he said.
Cramer said the market’s ability to look past events in the Middle East and focus on other crosscurrents was evident in Monday’s trading. Here’s what a battered software stock looks like: sales force and microsoft was the market’s best performer, while energy stocks lagged.
Ultimately, Cramer said the market’s resilience highlights the importance of staying focused on fundamentals, especially interest rates, rather than reacting to every geopolitical headline.
