Tags: jim cramer | normal | careful | market | investors

Jim Cramer to Traders: 'This Is Not a Normal Market, Be Careful'

By    |   Tuesday, 24 September 2019 03:20 PM

Investment guru Jim Cramer warns that investors must extra cautious in the current stock-market environment.

“You have to be skeptical of markets, entire markets, where more and more stocks are valued on something other than earnings,” Cramer said on CNBC.

“This is what happened during the dot-com crash — you had tons of companies that were trading on eyeballs and page clicks,” he said. “The more stocks that trade on weird metrics, the more likely it is that the market’s overvalued,” Cramer said.

During the dot-com bubble, in the mid-1990s to early 2000s, highly speculative internet stocks were the hottest assets on Wall Street. The tech-heavy Nasdaq eventually collapsed, shedding nearly 80% of value within seven months in 2000, CNBC.com explained.

As an example, Cramer said stocks such as Johnson & Johnson, McKesson and Boeing, are trading primarily on bad publicity, not results.

“I have another dozen examples in my head. A dozen examples of stocks that simply don’t trade on earnings or sales anymore,” he said. “When there were only a few of these names, it was fine. But these days there are so many of them that it’s become much harder to parse what’s going on in the broader market,” he said.

“You can only go up for so long based on something other than earnings before we have to accept that valuations have gotten out of whack. In other words, this is not a normal market, so we do need to be careful.”

However, Bloomberg recently reported that a $1.1 trillion shift out of equities and into bonds and money market funds during the last year marks the biggest asset-class rotation in history, according to research from quantitative strategists at Sanford C. Bernstein.

“If history is a guide then such periods of outflows tend to see somewhat better equity returns over the following six months,” analysts including global head of quantitative strategy Inigo Fraser-Jenkins wrote in a report dated Sept. 23.

Investors have bet big on global fixed income this year as the U.S. Treasury curve inverts -- typically a recession indicator -- and the country’s trade war with China shows little sign of resolution. The stockpile of negative-yielding debt across all markets hit a record late August.

That preference for bonds is now showing signs of changing course.

Flows into equities jumped to $19.2 billion for the week ended Sept. 18, the most in a year-and-a-half, according to EPFR Global. Inflows in the past two-week period to U.S. stock markets were the highest on record, strategists from Deutsche Bank wrote in a note. And Bank of America Merrill Lynch analysts in a note Friday said “flows are risk-on,” noting investor sentiment is extremely bearish.

“If you look at valuations, the equity risk premium of equities versus bonds is still very much in equities’ favor,” said Colin Graham, chief investment officer for multi-asset solutions at Eastspring Investments in Singapore. “It’s only really the U.S. that’s close to its all-time highs,” while other markets still have much cheaper price-to-earnings ratios, he said.

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Investment guru Jim Cramer warns that investors must extra cautious in the current stock-market environment.
jim cramer, normal, careful, market, investors
Tuesday, 24 September 2019 03:20 PM
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