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CNBC’s Jim Cramer declared Thursday that a recent spike in bad bank loans is the signal the Federal Reserve needs to begin cutting interest rates, arguing that the “credit cavalry is right on time” to rescue the market.
Cramer explained on “Mad Money” that these credit losses, while painful for the banks, are a definitive sign of a slowing economy that will motivate the Fed to act swiftly.
“Nothing motivates the Fed to move faster than credit losses because they’re a definitive sign that the economy is going south,” Cramer said.
He pointed to recent sour loans reported by Zions Bancorporation NA (NASDAQ:ZION), which announced on Wednesday evening that it had incurred a sizable charge due to bad loans to a couple of borrowers. Meanwhile, Western Alliance Bancorp (NYSE:WAL) alleged on Thursday that a borrower had committed fraud.
Cramer called the defaults “cockroaches” that prove a wider credit issue is emerging, a theory previously mentioned by JPMorgan Chase & Co. (NYSE:JPM) CEO Jamie Dimon.
After the bankruptcy of Tricolor Holdings, Dimon said, "When you see one cockroach, there’s probably more," raising red flags across the sector.
He argued that the pain from these bad loans will be largely contained within the banking sector. The ultimate effect of lower interest rates, however, will boost the “real economy” stocks—the service and industrial companies that have struggled.
Cramer explained, lower rates make housing more affordable, business expansion easier, and dividend stocks more attractive compared to bonds. He suggested that consumer-packaged goods companies like Campbell’s Co. (NASDAQ:CPB) and General Mills Inc. (NYSE:GIS) are already showing signs of bottoming out in anticipation of this shift.
While championing the prospects for the real economy, Cramer issued a stark warning to investors in speculative stocks. He urged those who have made significant money in high-flying sectors like quantum computing, rocket companies, and critical metals to “ring the darn register” and sell at least part of their holdings.
Comparing the current environment to the 2021 meme stock mania, he cautioned that insiders will eventually sell, and these parabolic moves will not last. “You don’t make money in a stock until you ring the register,” Cramer concluded. “Never confuse stocks with cash.”
The S&P 500 index ended 0.63% lower at 6,629.07 on Thursday, whereas the Nasdaq 100 index dipped 0.36% to 24,657.24. On the other hand, Dow Jones fell 0.65% to 45,952.24.
On Friday, the futures of the S&P 500, Dow Jones, and Nasdaq 100 indices were trading lower.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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