In a recent statement, Jim Cramer, the host of CNBC’s “Mad Money,” cautioned that the market could be on the brink of a significant downturn due to the unsustainable rise of certain tech stocks.
What Happened: On Tuesday, Cramer expressed concern about the market’s current trajectory. Despite not being a bear, he asserted that several stocks, particularly those in the technology sector promoting artificial intelligence initiatives, have experienced a rapid surge without a solid foundation, reported CNBC.
“While I’m not a bear, we have way too many stocks that have gone parabolic, meaning they’re straight up, and they’re going straight up on nothing,” Cramer said.
“They just keep rising as one analyst after another raises their price targets and really nothing more.”
He cited the recent market activity, with the Dow Jones Industrial Average falling by 0.62%, the S&P 500 by 0.37%, and the Nasdaq Composite by 0.19%, as a promising start to a potential correction.
Cramer highlighted that companies dealing in software for sales, data analysis, and measurement are witnessing this “parabolic” trend, despite no significant developments warranting such soaring share prices.
He emphasized that unless genuine new information emerges to sustain their growth, even the “Magnificent Seven” tech stocks need to “rest up.” Cramer also linked the Fed’s decision to halt interest rate hikes to the market’s rally, suggesting that this pause indicates a cooling economy and potential future rate cuts.
“No matter what, you just can’t have the same stocks go up and up and up on the same old news, and as I see it, that’s what’s happening — momentum and multiple expansion,” he said.
“Any stock that’s gone parabolic is a candidate to decline here.”
However, Cramer cautioned that the Fed’s lack of complete control over inflation and rising oil prices could disrupt the Fed’s goal of price stability.
“I say let this market come in,” he said. “It deserves a chance to correct even as some parts of it already have.”
Why It Matters: In recent weeks, Cramer has frequently advised investors to capitalize on their gains from stocks that have surged in the ongoing bull market. He has encouraged investors to take some profits off the table, even in the thriving market, to secure their gains.
Earlier this month, he also expressed skepticism about certain stocks, like Devon Energy Corp DVN and Lithium Americas Corp LAC, citing reasons such as a glut in the oil market and competition with Elon Musk.
Moreover, he recently criticized Confluent Inc CFLT for not making any money and having a “miserable” last quarter, showing his cautious stance on certain tech stocks.
Meanwhile, the U.S. stock market resumed its decline on Tuesday following a one-day closure for Martin Luther King Jr. Day. The major indices ended in the red as investors continued to monitor corporate earnings season and prospects for future interest rates. The S&P 500 slipped by 0.37%, while the tech-heavy Nasdaq 100 limited its losses to 0.19%, buoyed by the semiconductor sector.
Photo: Courtesy of Scott Beale on Flickr