CNBC’s Jim Cramer said Wednesday that the Federal Reserve’s first interest rate hike in three years has made it difficult to invest in stocks.
“If you buy stocks here, you’re officially fighting the Fed,” Cramer said on “Mad Money.” It came hours after the Federal Reserve raised its benchmark overnight interest rate by a quarter of a point to a range of 3.75% to 4%. “Don’t fight the Fed” is an old Wall Street adage about how to increase your chances of making money in the markets.
“Inflation is too high and has been there for too long,” Fed Chairman Kevin Warsh said in a post-meeting news conference, adding that Wednesday’s rate hike would help the central bank return to its 2% inflation target. Markets fell after Mr. Warsh repeatedly cited worrying price pressures that were hurting stock returns.
of Dow Jones Industrial AverageThe index, which includes 30 economy-sensitive stocks, led the decline, dropping 631 points (1.2%) on the day. broader S&P500 and heavy use of high technology Nasdaq The declines were only 0.5% and 0.01, respectively. All three indexes briefly rose during the session before the Fed took action and before Mr. Warsh began speaking.
The problem for stocks, Cramer said, is that Wednesday’s rate hike appears to be the start of a series of Fed rate hikes until oil prices and inflation ease. “Any future interest rate hikes will likely depress stock prices.”
Rising interest rates tend to slow economic activity as borrowing becomes more expensive and bonds become more competitive with stocks for investment funds. of 10 year government bond yield At about 20-year highs above 5%, risk-free returns start to look quite attractive.
Cramer said investors shouldn’t abandon the market completely, but stressed that the range of stocks that can perform in a tightening cycle is shrinking. “Some executives stick with stocks of companies that are going to do well no matter what happens with interest rates.” He counts the CNBC Investment Club among them, and cites pharmaceutical stocks as an example of his favorite defensive group.
“At the end of the day, I think buyers will come back…but as long as Kevin Warsh is on the warpath, a lot of groups simply won’t work,” Kramer said. During that time, he concluded, “We bought fewer shares. We held fewer shares. We sold more shares.”
