Jim Cramer, the host of Mad Money, recently broke down the market’s performance on Tuesday, discussing how President Donald Trump’s early days in office might be influencing investor sentiment. He speculated that the stock rally could be tied to a belief among investors that Trump’s promises on tariffs may be harsher than his actual actions, leading to optimism.

Cramer pointed out that during Trump’s first presidency, investors learned to buy stocks during moments of market volatility caused by his aggressive rhetoric. He noted that Trump’s frequent saber-rattling would often prompt sell-offs, but those moments, when stocks of companies he criticized dropped, turned out to be prime opportunities to invest.

Cramer explained that this pattern of buying the dips was exactly what played out on Tuesday. After months of discussing high tariffs, Trump’s inaugural speech struck a more tempered tone, and he avoided threatening severe trade barriers. According to Cramer, this shift in rhetoric surprised many, especially given how aggressive his stance had been in the past.

“Maybe four years is a long time ago, but people seem to forget the Trump drill. The president loves the stock market. He always loves to send signals that all hell is going to break loose and when it doesn’t, well guess what? The market flies.”

READ ALSO Jim Cramer Discussed 9 Stocks for This Week’s Game Plan and 9 Stocks on Jim Cramer’s Radar

Cramer also suggested that this latest market rally is driven by the prospect of tariffs, especially on tariffs that are smaller than initially forecasted. He mentioned that these could increase if foreign countries don’t comply with U.S. demands. Furthermore, Cramer highlighted the role of new projects such as Stargate, an AI infrastructure initiative backed by OpenAI, Oracle, and SoftBank. He noted that this project, which will involve new data centers likely outfitted with Nvidia technology, was another contributing factor to the market’s upbeat performance. Cramer noted that the presence of major tech leaders at the inauguration further reinforced optimism.

“Will it stay this way? What did we learn about Trump the first time around? You could never be sure. The difference on day one? He knows business people, Silicon Valley. He knows how things work. You may like him. You may hate him. But the bottom line? If you’re a tech titan, Trump will take your call. In fact, he’ll call you. Biden, I don’t know if he knew who they even were and he certainly didn’t bother to call them. In the end, I think he preferred to sue them. If you own stocks, which is why you watch me, Trump’s method is a heck of a lot better for your portfolio.”

Our Methodology

For this article, we compiled a list of 8 stocks that were discussed by Jim Cramer during the episode of Mad Money on January 21. We listed the stocks in the order that Cramer mentioned them. We also provided hedge fund sentiment for each stock as of the third quarter of 2024, which was taken from Insider Monkey’s database of 900 hedge funds.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

8 Stocks on Jim Cramer’s Radar

8. The Home Depot, Inc. (NYSE:HD)

Number of Hedge Fund Holders: 82

While Cramer was on the subject of housing, he explained that The Home Depot, Inc. (NYSE:HD), one of the largest and most recognized retailers in the home improvement sector, is part of his Charitable Trust portfolio because he believes the company will perform well in a lower interest rate environment. He mentioned that he and his team have been buying shares since September 2024, expecting positive results as interest rates decline. He went on to say:

“While we haven’t exactly gotten that lower-rate environment, Home Depot’s stock has held up pretty well these past few months. It’s actually up modestly since September… I think it’d be one of the best stocks in the Dow. Last year, Home Depot did a relatively large deal. It put this $18.25 billion acquisition of SRS Distribution, which let them move further into the part of the market where Builders FirstSource operates, that’s the professional space.

The deal’s already benefiting Home Depot when the company last reported earnings in November, its sales were up 6% year over year, despite the fact that still cautious do-it-yourselfers, well, the shoppers, they went into Home Depot less and spent less per transaction than in the year before. That didn’t matter because they did so much professional business. Home Depot also called out hurricane-related demand in the quarter, but I think it’s going to play out over multiple quarters or even multiple years like the fires in the Southland.”

Cramer reiterated that both Builders FirstSource and Home Depot (NYSE:HD) are stocks that rely on lower interest rates to perform well. He emphasized that if someone believes long-term rates will continue to rise, these stocks could face challenges. However, he said that if someone believes that the rise in long-term rates is mostly over, then both Builders FirstSource and Home Depot should be considered strong buying opportunities. Cramer hammered his point with a clear “buy buy buy” buzzer sound as he expressed his confidence in these stocks. Lastly, he added:

“Bottom line, once the macro backdrop is right, then Builders FirstSource and Home Depot stand to benefit… from both the persistent housing shortage and now the additional business that will come from the vast rebuilding efforts underway in multiple states impacted by natural disasters recently. So if you’re in the camp that expects lower rates, those are two terrific stocks to buy right now.”

7. Builders FirstSource, Inc. (NYSE:BLDR)

Number of Hedge Fund Holders: 55

Cramer put Builders FirstSource, Inc. (NYSE:BLDR) “at the very top of the list” and said:

“It’s a company called Builders FirstSource, that’s the nation’s largest supplier [of] building products, prefabricated components, and value-added services to home builders and contractors. I’ve been recommending Builders FirstSource for years now as a play on the idea that we have a structural shortage of single-family homes and even if everybody builds like crazy, it’ll take years to fill that shortage. However, Builders FirstSource has been a tough stock to own when interest rates go higher like they’ve been doing for the bulk of the past four months.

When rates go higher, mortgages and home equity loans get more expensive. People buy fewer houses and so the builders don’t need to buy as much stuff from Builders FirstSource. When you look at its stock versus the yield in the 10-year treasury, you can see that it peaked in mid-September at just over $200 and then fell more than 30% from its highs before bottoming earlier this month. That’s entirely because the yield in the 10-year went from 3.6% to 4.8% during that time.”

Cramer pointed out that last week’s pullback in long-term rates caused a significant rebound in the stock, emphasizing that Builders FirstSource’s (NYSE:BLDR) future performance depends on the bond market. Cramer stated that if rates keep falling, the stock could continue to do well, but if rates rise again, the rally would likely end. While the recent 70% rally wasn’t solely driven by interest rates, he highlighted that rate movements play a key role in the stock’s potential. He added:

“On Thursday night, the stock caught a very enthusiastic coverage initiation from Raymond James with an outperform rating. They argue any bad news is already baked in and Wall Street’s not giving Builders FirstSource enough credit for what it does. Well, I think they’re gonna be bright. The very next morning, we learned that December housing starts came in well above expectations. Overall, housing starts were up 15.8% month-over-month, rising to a seasonally adjusted annual rate of 1.5 million units.

Wall Street was only looking for an increase of 3%. Highest annualized housing starts in 10 months. Most of last year, anything related to the home builder struggled as housing starts consistently came in below expectations. Once it became clear that the Fed wasn’t going to cut interest rates as aggressively as Wall Street was hoping, the builders pulled in their horns. Then when rate cuts from the Fed finally did materialize in the final months of the year, it didn’t help because the bond market went in the opposite direction, very strange behavior and long rates soared.”

Cramer highlighted the importance of long-term interest rates in the construction industry, as they impact mortgage rates. He noted that builders have grown more confident, suggesting an increase in building activity. Cramer also pointed to the extensive rebuilding needed in areas affected by Hurricanes Helene and Milton in the Southeast and the wildfires in Southern California. With tens of thousands of homes in Florida, North Carolina, and California requiring repairs or complete reconstruction, Cramer believes this will create more business opportunities for Builders FirstSource (NYSE:BLDR) and other companies in the sector. He concluded by saying:

“Bottom line, once the macro backdrop is right, then Builders FirstSource and Home Depot stand to benefit… from both the persistent housing shortage and now the additional business that will come from the vast rebuilding efforts underway in multiple states impacted by natural disasters recently. So if you’re in the camp that expects lower rates, those are two terrific stocks to buy right now.”