Moneywise and Yahoo Finance LLC may earn commission or revenue through links in the content below.
Jim Cramer believes one of the biggest forces supporting the stock market could be losing its strength.
On a June episode of Mad Money, the CNBC host didn’t mince words about the changing environment for investors. “Things have changed. For the worse,” Cramer warned (1), adding that, “There’s a shroud over this market and you ignore it at your own peril.”
Must Read
-
Jeff Bezos backs a platform that lets anyone invest in rental homes for as little as $100 — 6 ways to build wealth like a landlord without actually being one
-
JPMorgan sees gold hitting $5,000/oz by Q4 — and savvy investors are protecting their wealth with a tax-advantaged Gold IRA. Get your free guide from Priority Gold
-
The tax breaks in Trump’s ‘big beautiful bill’ expire after 2028. Here are 4 moves to make before the window closes
At the time, Cramer was particularly worried that a resilient economy and stubborn inflation could keep the Federal Reserve from cutting interest rates — depriving stocks of a potential catalyst investors had been counting on.
That concern hasn’t gone away. In fact, the debate at the Fed has shifted even further in the opposite direction.
The central bank has kept its benchmark interest rate at 3.5% to 3.75% since December (2). At its July meeting, three policymakers voted to raise rates by a quarter point, while the Fed acknowledged that inflation remains above its 2% goal.
And Fed Chair Kevin Warsh has since made clear that another rate hike remains possible if inflation fails to improve.
For investors, that raises a potentially uncomfortable question: What happens if lower interest rates don’t come to the rescue?
Why higher rates can become a problem for stocks
Cramer had pointed out that such high employment numbers mean the Federal Reserve is far less likely to cut interest rates this year.
Higher rates can change how much investors are willing to pay for stocks in the first place.
When interest rates are low, future corporate profits become more valuable in today’s dollars, which can help support higher stock valuations. That dynamic has historically been particularly important for growth and technology companies, whose share prices often depend heavily on earnings expected years down the road.
Higher rates can work in reverse.
Companies that need to borrow to expand, acquire competitors or refinance existing debt can face steeper financing costs. Consumers can also feel the effects through more expensive mortgages, auto loans and other forms of credit, potentially leaving them with less money to spend.
