On Monday, Jim Cramer of Mad Money took a closer look at the market’s recent movements, reassuring investors that rising bond yields shouldn’t cause excessive worry. He noted that bond yields have surged significantly since the Federal Reserve cut rates last month, a trend that might seem counterintuitive. Cramer acknowledged that bonds were behind Monday’s “ugly action in the big caps”.
The Dow fell by 344 points, the S&P slipped by 0.18%, while the Nasdaq managed a slight gain of 0.27%. Cramer emphasized that while bonds play a crucial role, they aren’t the sole factor influencing the market’s performance, despite what some may claim. He expressed his frustration with those who panic at the sight of rising interest rates, suggesting that such reactions are misguided. Cramer pointed out that the stock market has experienced a remarkable rally.
“The stock market has had a fabulous run, even as bond yields have crept up almost the entire time. They love to ignore that glaring fact, the bears. Every day is groundhog day for them. They see interest rates go up higher, so they panic themselves and they are trying to panic us.”
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Cramer proceeded to break down the arguments typically made by bond bears, who often use long-term interest rates as a weapon against the Fed. He criticized their simplistic approach, where rising rates are blamed on the Federal Reserve while falling rates somehow earn them credit. According to him, the Fed’s recent decision to cut rates by 50 basis points was necessary.
“… Here’s the simple truth, did the Fed need to do a double rate cut moving 50 basis points and not 25? Yes. Yes, they had to do it if they wanted to be sure that the proverbial plane didn’t crash.”
He firmly stated that Jerome Powell, the Fed Chair, is simply fulfilling his duties responsibly, and those who continuously express skepticism will ultimately be proven wrong. Addressing the notion that a rate cut would trigger inflation, Cramer pointed out that the bond market’s reaction suggests that the initial cut has already sparked fears of inflation resurgence.
He challenged the idea that the effects of a rate cut are immediate, asserting that higher loan rates, particularly for 30-year mortgages, can actually have an anti-inflationary effect, contrary to what some might believe. He highlighted that the most pressing concern in the inflation landscape remains housing.
Cramer also tackled the prevailing belief among bears that stock prices cannot rise if interest rates increase. He dismissed this idea as arbitrary, asserting that we are far from a situation where higher rates would definitively damage the bull market.
“We are nowhere near the point where the bull can be slain by higher, longer rates… Stocks have soared with bond yields at these levels before; in fact, they’ve soared with the 30-year at 5%, they’ve soared with the 30-year at 6%, so let’s stop it with the jeremiads.”
Ultimately, he argued that such fears merely drive investors away from solid companies that are performing well.
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Our Methodology
For this article, we compiled a list of 13 stocks that were discussed by Jim Cramer during the lightning round of his episodes of Mad Money on October 18 and 21. We listed the stocks in ascending order of their hedge fund sentiment as of the second quarter, which was taken from Insider Monkey’s database of more than 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).
13. IonQ, Inc. (NYSE:IONQ)
Number of Hedge Fund Holders: 12
Cramer said that he cannot recommend IonQ, Inc. (NYSE:IONQ) stock. He explained his reasoning as he said:
“That’s a parabolic move. You might be in the middle of [a] parabolic move. That means you got more upside. You might be near the end and you’re going to get clobbered. I cannot recommend that stock on that basis.”
IonQ (NYSE:IONQ) develops general-purpose quantum computing systems in the United States. The company offers access to quantum computers with varying qubit capacities, catering to the growing demand for advanced computational power. Recent developments have significantly impacted the company’s visibility in the market, particularly a major contract signed in September with the U.S. Air Force Research Lab (AFRL) (see 12 Best Quantum Computing Stocks to Buy)
The four-year agreement, valued at $54.5 million is the company’s largest contract for 2024 and boosts the year-to-date order bookings to $72.8 million. Through this collaboration, it aims to improve the scalability and deployment of quantum computing technologies.
However, the pursuit of cutting-edge quantum computing comes with substantial costs. In the second quarter, the company reported a net loss of $37.6 million, driven by research and development expenses that surged 57% year-on-year, climbing to $31.2 million from $19.9 million in 2023.
It should be noted that IonQ (NYSE:IONQ) raised its revenue expectations for the full year 2024 to a range of $38 million to $42 million, with projected revenues of between $9 million and $12 million for the third quarter. Additionally, the company has reaffirmed its earlier stated bookings target of $75 million to $95 million for the full year.
12. AST SpaceMobile, Inc. (NASDAQ:ASTS)
Number of Hedge Fund Holders: 15
Cramer finds AST SpaceMobile, Inc. (NASDAQ:ASTS) stock overvalued and commented that he cannot recommend it.
“Okay. I have felt that that company is overvalued. It’s a telecommunications company with mobile space. I keep waiting for Starlink to come out and then I’d be more involved, that’s the Elon Musk company. I cannot recommend AST SpaceMobile. It doesn’t make any money.”
AST SpaceMobile (NASDAQ:ASTS) is building a space-based cellular broadband network designed specifically for smartphones in the United States. Utilizing low Earth orbit (LEO) satellites, the company aims to provide cellular connectivity for devices operating on 2G, 4G, and 5G networks. The vision is to advance mobile connectivity, especially in areas where traditional cellular infrastructure is lacking.
The company’s initial deployment involves launching five satellites, which will enable a non-continuous cellular broadband service across the United States and select global markets. However, this initial offering will be quite limited. To establish a more comprehensive and reliable service, management estimates that approximately 95 satellites will be necessary.
In the second quarter, AST SpaceMobile (NASDAQ:ASTS) reported total adjusted operating expenses of $34.6 million, an increase of $3.5 million from the $31.1 million reported in the first quarter of the same year. The rise was because of various factors, including a $2.0 million increase in adjusted general and administrative costs, a $1.3 million rise in adjusted engineering services costs, and a $0.2 million uptick in research and development expenditures.
The company provided good news on September 12, when SpaceX’s Falcon 9 rocket successfully launched the first five satellites, referred to as BlueBirds, into low Earth orbit. Abel Avellan, the founder, chairman, and CEO, described this launch as a significant milestone for the company.
