Important points
CNBC’s Jim Cramer warned that Wall Street may be underestimating the growing risks facing the market, including higher oil prices and increased spending on artificial intelligence. “I’m having a hard time finding reasons to buy, but there are certainly plenty of reasons to sell,” he told “Squawk on the Street” Thursday before the market opened. The major Wall Street averages opened lower, with selling pressure building early in the session. The Dow Jones Industrial Average fell more than 400 points, the S&P 500 index fell more than 1% and the tech-heavy Nasdaq Composite Index fell about 2%. This is the fifth decline in six sessions for both the S&P 500 and Nasdaq. Still, Kramer said the market has held up better than most expected. As of Wednesday’s close, the S&P 500 is down just 1.5% from its June 2 record high, while the Nasdaq is down about 5% from its June 2 record close. The blue-chip Dow most recently closed at an all-time high on July 6, and opened Thursday about 1.6% below that level. “That litany of horrific events would indicate that we are far from the highest standards, but we are not,” Kramer said. Kramer said the biggest factor in these concerns is oil. International benchmark Brent crude soared more than 6% on Thursday to more than $100 a barrel after Yemen’s Iranian-backed Houthi militants claimed to have attacked two Saudi oil tankers in the Red Sea, raising concerns that the conflict could escalate. Oil prices also rose after President Donald Trump threatened that the United States would retaliate and bomb Iranian infrastructure. Brent crude oil and West Texas Intermediate crude oil were both trading at their highest levels since before the United States and Iran reached a tentative deal to end the war last month. The yield on the 10-year US Treasury note is at its highest level since January as rising oil prices raise concerns about inflation. Sustained increases in energy prices are reigniting inflationary pressures and complicating the Fed’s path to lower interest rates this year. Rising inflation levels typically increase the likelihood of interest rate hikes, which can weigh on economic growth and stock prices. Indeed, with the US central bank’s policy committee scheduled to meet next week, the likelihood of a rate hike has increased sharply in recent days. According to the CME FedWatch tool, the market allocated a 38% change in quarterly point gains at the meeting, up from just 12% a week earlier. “Are you kidding me?” Kramer said. “We have oil…we have interest rates…we just don’t have the horses to keep going up right now.” Cramer said Alphabet’s quarter highlighted another risk he’s focused on: the huge costs of building AI. He said the company reported a “good quarter” but questioned how long companies could continue funding AI at the current pace. Alphabet recently announced plans to raise about $85 billion this year through stock sales, in addition to increased debt issuance. Cramer’s Charitable Trust, a portfolio managed by CNBC’s investment club, owns stock in Alphabet. “We have no idea where (the additional funding) is going to come from,” he said. “I think the corporate bond market will be the first to say, ‘That’s okay.'”
