“There are a lot of negatives surfacing in an environment where there is so much speculation and so much supply, so it’s not a terrible time,” Cramer said on “Squawk Box.”
Japan’s public-health directive for Tokyo is set to take effect on Monday and will last until the summer Olympics. According to reports, all spectators will be prohibited.
According to Cramer, the Tokyo order “makes you feel like, ‘Wait a second. Is it true that we’ve returned to that world, and that travel is no longer possible?'”
The “Mad Money” host also mentioned bitcoin, which was down more than 6% Thursday morning to less than $32,500. Since reaching an all-time high near $65,000 in mid-April, the world’s largest cryptocurrency by market value has been under pressure.
Bitcoin’s decline “freaks out people as well,” according to Cramer. “I believe that is China…. China no longer wants bitcoin.”
Another factor for the market, according to Cramer, is the level of speculation surrounding so-called meme stocks. While GameStop, AMC Entertainment, and a few other names have received the most attention since the Reddit trading frenzy began in earnest in late January, Cramer claims it is now spreading to more obscure names.
“We have to be cautious of these people. “This is no longer just a couple of guys having a good time,” Cramer explained.
“I do believe that the speculators have simply overreached,” he added. “If AMC and GameStop fail, you’ll see a lot of that $23 billion that came into the market in June leave.”
AMC shares were down more than 8% in premarket trading, one day after closing down 9.79% at $45.07 per share. GameStop shares were down more than 5% in premarket trading, following a 4.46 percent drop on Wednesday. AMC was up more than 2,000% for the year as of Wednesday’s close. In 2021, GameStop’s revenue increased by nearly 1,000%.
“I would tell you that we just continue to see a lot of stocks go up, brutally up, because memesters have expanded beyond GameStop and AMC because they realize Gary Gensler, the SEC chairman, is completely overwhelmed.”
The SEC did not respond immediately to request for comment.
Futures market movement Thursday comes after the S&P 500 and Nasdaq closed at record highs on Wednesday, and the Dow Jones Industrial Average finished just short of a record close on Tuesday. It also comes as the 10-year US Treasury yield falls further, reaching 1.25 percent earlier this morning.
Cramer believes some market participants are beginning to doubt the economy’s ability to recover from the pandemic. “I believe people are concerned that things have calmed down. “I call it the as-good-as-it-gets phenomenon,” he said, noting that several Wall Street analysts have downgraded mining, steel, and chemical firms.
Another market consideration is the highly transmissible delta variant, which has now become the dominant coronavirus strain in the United States, according to Cramer. “To say that the delta variant has caused us to have a problem, let’s say with people who haven’t been vaccinated, I think that’s just true.”
What to do during the market sells off
U.S. equities fell on Thursday, and Goldman Sachs has two portfolios which are evidence of volatility and which should be kept by investors.
The first is a collection of high-quality names, whereas the second is a collection of defensive plays that can outperform regardless of global growth prospects.
The high-quality stock basket is an equal-weighted sector-neutral portfolio of large-cap stocks. The firm looks for companies with strong balance sheets, consistent earnings and revenue, and an above-average return on equity. In addition, the names included have a low historical drawdown risk.
“In weak or uncertain macroeconomic environments, investors should place a premium on these companies’ stability and safety,” the firm wrote in a client note.
Alphabet and T-Mobile are among the names on the list in the communication services sector. Discretionary includes Home Depot, Dollar General, and Dollar Tree, while Staples includes Church & Dwight and McCormick. In the Health Care sector, Goldman chose Thermo Fisher and Regeneron, while First Republic and Truist are safe bets in the Financials sector.
Fears about the global economic recovery are fueling some of Thursday’s premarket sell-off, as cases of the delta Covid variant rise. Goldman also has a portfolio of stocks that are appealing bets for investors even if growth slows.
The firm’s defensive stock basket includes companies from eight S&P 500 sectors that have a lower beta to Goldman’s U.S. MAP index than the S&P 500. The proprietary index collects key indicators for each country, taking into account factors such as GDP growth and purchasing managers’ indices. It aims to “summarize the significance and strength (relative to consensus expectations) of global economic indicators.”
The firm’s defensive basket has a weighted-average beta of 0.1 to the US MAP index, whereas the S& 500 has a beta of 0.5 to the index. This essentially means that the stocks are less reliant on the overall economy for growth.
Unlike the high-quality portfolio, the defensive list is weighted by market capitalization. The top five holdings are Apple, Microsoft, Amazon, Johnson & Johnson, and Visa. UnitedHealth, Procter & Gamble, Cisco Systems, Salesforce, Coca-Cola, and Merck are also among the top 20 holdings, accounting for roughly half of the total basket.